Private Market Financing for - Developing Countries - IMF ...

WORLD ECONOMIC AND FINANCIAL SURVEYS

Private Market Financing for

Developing Countries

Prepared by a Staff Team in thePolicy Development and Review Department

Steven DunawayRobert Rennhack

Brian AitkenGeorge Anayiotos

David AndrewsJahangir Aziz

Juan Jose Fernandez-AnsolaShogo Ishii

Thomas LaursenPaul MylonasSusan Prowse

Alejandro SantosAnne Jansen

Jolanda HeemskerkLouis Pauly

INTERNATIONAL MONETARY FUNDWashington, DC

March 1995

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© 1995 International Monetary Fund

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Contents

Page

Preface vii

I. Overview and Current Issues 1Progress with Commercial Bank Debt Restructuring 1

Recent Experience 1Prospects 2

Private Financial Flows 2Recent Experience 2Durability of Market Re-Entry and Pricing of Risk 2

II. Commercial Bank Debt Restructuring 5Overview 5Recent Bank Packages 5Debt-Conversion Activity 10Secondary Market Developments 11

III. Recent Developments in Private Market Financing 13Bonds 13Bond Pricing 17Equities 21Commercial Bank Lending 25Other Issues 28

IV. Institutional and Regulatory Framework for Developing Country Financing 31Reform of Regulatory Structures 31Expanding the Investor Base 32Regulatory Harmonization 33Regulatory Changes in Creditor Countries 34

Securities Markets 34Provisioning Standards 34

V. Foreign Direct Investment 35Recent Trends in Direct Investment 35Behavior of Foreign Direct Investment Transactions in a Crisis 36

Statistical Appendix 41

Bibliography 81

Tables

II. 1. Commercial Bank Debt- and Debt-Service-Reduction Operations 1987-July 1994 6

2. Bank Menu Choices in Debt-Restructuring Packages 7


CONTENTS

Page

II. 3. Buy-Back Equivalent Prices in Debt- and Debt-ServiceReduction Operations 8

4. Debt Conversions 11III. 5. International Bond Issues by Developing Countries and Regions 15

6. Credit Ratings of Developing Country Borrowers 187. International Equity Issues by Developing Countries and Regions 248. Terms of Long-Term Bank Credit Commitments 289. Total Returns on Equity in Selected Emerging Market Countries:

Before and After Opening to Foreign Investors 3010. U.S. Net Purchases of Foreign Equity in Selected Countries:

Before and After Opening to Foreign Investors 30

AppendixAl. Chronology of Bank Debt Restructurings and Bank Financial Packages,

1984-July 1994 41A2. Amounts of Medium- and Long-Term Bank Debt Restructured 42A3. Terms and Conditions of Bank Debt Restructurings and Financial

Packages, July 1989-July 1994 43A4. Debt and Debt-Service Reduction in Commercial Bank Agreements

1987-July 1994 50A5. International Bond Issues by Developing Countries and Regions,

by Type of Borrower 60A6. Yield Spread at Launch for Unenhanced Bond Issues by Developing

Countries and Regions 62A7. Maturing Bonds of Developing Countries by Regions 64A8. International Bond Issues by Developing Countries by Currency of

Denomination 65A9. Enhancements of International Bond Issues by Developing Countries 66

A10. Granger Causality Tests on Daily Data of Brady Par Bond Prices 67Al l . Granger Causality Tests on Daily Data of Sovereign Eurobond Prices 68A12. Emerging Markets Mutual Funds 69A13. Net Bond and Equity Purchases by Emerging Markets Mutual Funds 70A14. Issues of Closed End Funds Targeting Emerging Markets in

Developing Countries and Regions 71A15. Bank Credit Commitments by Country or Region of Destination 72A16. Terms on Syndicated Bank Credits for Selected Developing Countries

and Regions 73A17. Correlation Among Total Returns on Bonds for Selected Countries 74A18. Correlation Among Secondary Market Prices of Brady Bonds 75A19. Correlation Among Total Returns on Equity for Selected Countries 77A20. Provisioning Regulations Against Claims on Developing Countries 78A21. Net Foreign Direct Investment Flows to Developing Countries 80

ChartsI. 1

II.III.

2.3.4.5.

Selected Developments in Secondary Market Prices DuringNegotiations of Bank Restructuring Packages 3

Maturing Bonds of Developing Countries 4Secondary Market Prices of Bank Claims on Selected Countries 12Private Market Financing to Developing Countries 13Yield Spreads at Launch for Unenhanced Bond Issues by Developing

Countries 14Secondary Market Yield Spreads on U.S. Dollar Denominated Bonds by

Selected Developing Countries 14

IV

6.


Contents

Page

7. Comparison of Yields of Sovereign Bonds to Yields on U.S. CorporateBonds 20

8. Comparison of Sovereign Bond Spreads 219. Comparison of Movements in Spreads and Economic Variables for

Mexico and Venezuela 2210. Comparison of Movements in Spreads and Economic Variables for

Hungary and Turkey 2311. Emerging Market Mutual Funds 2512. Share Price Indices for Selected Markets in Latin America 2613. Share Price Indices for Selected Markets in Asia 2714. Weekly Volatility of Total Returns on Bonds and Equities for

Selected Countries 29V. 15. Net Foreign Direct Investment to Developing Countries 36

16. Composition of Net Private Capital Flows 37

The following symbols have been used throughout this paper:

. . . to indicate that data are not available.

— to indicate that the figure is zero or less than half the final digit shown, or that the item does notexist;

between years or months (e.g., 1992-93 or January-June) to indicate the years or months covered,including the beginning and ending years or months;

/ between years (e.g., 1992/93) to indicate a crop or fiscal (financial) year.

"Billion" means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term "country," as used in this paper, does not in all cases refer to a territorial entity that is a stateas understood by international law and practice; the term also covers some territorial entities that are notstates, but for which statistical data are maintained and provided internationally on a separate and inde-pendent basis.

V


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Preface

This study was prepared in the Policy Development and Review Department of theInternational Monetary Fund, under the direction of Steven Dunaway, Chief of the Debt andProgram Financing Issues Division, with Robert Rennhack, Deputy Chief of the division. Itsauthors are Brian Aitken, George Anayiotos, David Andrews, Jahangir Aziz, Juan Jose Fer-nandez-Ansola, Shogo Ishii, Thomas Laursen, Paul Mylonas, Susan Prowse, and AlejandroSantos, economists in the division; Anne Jansen, research officer in the division; and JolandaHeemskerk, an intern at the IMF during the summer of 1994. The study updates informationand analyses contained in Private Market Financing for Developing Countries, World Eco-nomic and Financial Surveys (Washington: IMF, December 1993).

The work benefited from comments by staff in other departments of the IMF and by mem-bers of the Executive Board. Opinions expressed, however, are those of the authors and donot necessarily represent the view of the IMF or its Executive Directors. The study was com-pleted in October 1994 and reflects developments to that time.

Louis Pauly prepared the text for publication. The authors are also grateful to DelreneAlvis, Lucia Buono, Ida Jenkins, and Anne-Barbara Hyde for their valuable word-processingservices. Juanita Roushdy of the External Relations Department, gave the manuscript a finaledit and coordinated production.

VII


IOverview and Current Issues

ver the period since the end of 1992, steadyprogress has been achieved toward resolving the

commercial bank debt problems of middle-incomecountries.1 By the end of 1994, most of the majordebtor countries in this group will have completedrestructurings of their bank debt. At the same time, anumber of developing countries—including some ofthe former major debtors—have expanded their accessto spontaneous private financing, as investor interest indeveloping country bonds and equities broadened sig-nificantly. The markets for these securities ran intosubstantial turbulence at times during the first half of1994, however, reflecting higher interest rates in inter-national markets prompted by the tightening of mone-tary conditions in the United States and by adversedevelopments in some developing countries.

Progress with Commercial Bank DebtRestructuring

Recent ExperienceOver the past year, Brazil, Bulgaria, the Dominican

Republic, Jordan, Poland, Sao Tome and Principe, andZambia completed bank-debt-restructuring packageswith support from the Fund, the World Bank, and bilat-eral official agencies. Ecuador also is expected to com-plete an arrangement with its bank creditors before theend of 1994. By that time, a total of 21 countries willhave concluded bank debt- and debt-service-reductionoperations. Debt worth approximately $170 billion willhave been restructured, representing roughly 75 per-cent of bank debt outstanding at the end of 1989 for thegroup of heavily indebted developing countries (TableAl). Panama and Peru are the most heavily indebtedmiddle-income countries that have not yet regularizedrelations with their commercial bank creditors; both areengaged in negotiating restructuring agreements.

South Africa continued to address its external debtproblems through a rescheduling of obligations tocommercial banks. Agreement on a fourth and finalarrangement following the 1985 payment "standstill"was reached in September 1993. In the case of Russia,

'For earlier periods, see Collyns and others (1993, 1992, and1991). For information on official financial flows to developingcountries, see Kuhn and others (1994).

talks have focused on rescheduling its stock of bankdebt and capitalizing a declining share of interestarrears. A preliminary agreement was reached in July1993, but its implementation was delayed pending res-olution of issues regarding Russia's waiving sovereignimmunity and designation of the official agency thatwould be the signatory to the agreement. These issueswere resolved in September 1994, and the agreement isto come into effect by the end of the year, after Russiamakes a previously agreed payment of $500 millionwith respect to past due 1993 interest obligations.

A growing number of low-income countries also aremaking efforts to resolve their debt problems, oftenaided by the resources of the debt reduction facility forcountries of the International Development Associa-tion (IDA). Progress for most, however, remains slow.With the backing of IDA resources and assistance fromofficial bilateral sources, debt buy-backs have beenconcluded by Bolivia, Guyana, Mozambique, Niger,Sao Tome and Principe, Uganda, and Zambia. Prelimi-nary discussions on similar operations are under waywith several other countries.

Further innovations in debt operations have occurredover the past year. Bulgaria's discount bond, for exam-ple, involves a much steeper discount than has been thecase in previous debt packages. In addition, Poland'sagreement provided for some debt reduction for inter-est arrears and did not include interest collateral. Pack-ages now generally include limits on the use of certainoptions or explicit rebalancing clauses to providecountries with more certainty as to the up-front costs ofan operation and the profile of debt-service relief ulti-mately provided. The Fund and the World Bank havealso shown increased flexibility in the use of their ownresources by eliminating the segmentation provisionsin their guidelines governing support for bank debtoperations.

Over the past year, bank debt operations for Braziland Jordan were financed entirely by the debtor coun-tries themselves. While not directly involved in thesedeals, the international financial institutions have pro-vided some indirect support. The bank deal with Jor-dan was predicated on the existence of a Fundarrangement with the country. In the case of Brazil, thecountry's stabilization program, which was expected tobe monitored by the Fund, and continuing discussionson a Fund arrangement were considered sufficientassurance to enable completion of negotiations withcreditors.

1

O


I OVERVIEW AND CURRENT ISSUES

Prospects

Notwithstanding recent progress, certain develop-ments appear likely to make future negotiationsbetween indebted developing countries and the holdersof their commercial bank obligations more complex.Nonbank investors now have purchased significantamounts of bank debt in the secondary market. Diffi-culties in persuading them to accept certain aspects ofthe debt packages negotiated by bank advisory com-mittees have contributed to delays in completing somerecent restructuring operations. Negotiating commit-tees in the future will have to take better account of thediverse interests of these investors.

Another possible complication arises from the mar-ket impact of speculation that a country will concludea debt- and debt-service-reduction operation. Forexample, so-called pre-Brady speculation has con-tributed to the run-up in the secondary market pricesfor the bank debt of Panama and Peru. In recent years,such price run-ups have tended to be earlier and largerthan was the case for countries that concluded debtpackages in 1989 and 1990 (Chart 1). As a conse-quence, secondary market prices may not always fullyreflect a country's medium-term capacity to service itsdebt and the up-front costs of completing a debt-restructuring agreement may be bid up significantly.The potential effects of such speculation will need tobe taken into consideration in negotiating the terms ofbank packages in the remaining cases.

While most of the major baric debt cases have beenresolved, attention still needs to be focused on theproblems of low-income countries. In many of thesecountries, the process of debt restructuring has beendelayed owing to economic and political difficulties.Although the amounts owed by these countries aresmall compared with the debt of the large middle-income debtor countries, individual debt burdens formany are severe. In some cases in the past, commercialbanks have accepted steep discounts on these debts,particularly when they had no significant longer-termbusiness interests and had already made provisions forlosses. Additional flexibility will be needed in thefuture. There will also be a continuing substantial needfor concessional assistance to finance debt operations.For some low-income countries, the total amount ofassistance required to buy back bank debt, even at verysteep discounts, is likely to be relatively large.Resources from the debt reduction facility for IDAcountries and from other official agencies may not besufficient. In such cases, it may not be enough to orga-nize simple buy-backs of commercial bank debt.Instead, more complex operations may have to be con-sidered that reduce up-front costs but still provide debtand debt-service reduction in line with a country's pay-ments capacity over the medium term. Such dealsmight involve options that include larger discounts ondiscount bonds, par bonds bearing lower interest rates,

more favorable treatment of past due interest, and lessthan full collateralization of principal.

Private Financial Flows

Recent ExperienceThe resurgence in private market financing to devel-

oping countries that began in the late 1980s continuedduring 1993 as both portfolio flows and net foreigndirect investment rose sharply.2 The strong expansionin international bond and stock placements was fueledin large part by a broadening of the investor base toinclude a wider group of institutional investors.3

Medium- and long-term commercial bank lending,however, remained limited. Moreover, while total pri-vate market financing for developing countries as agroup increased strongly in 1993, much of these flowscontinued to go to a small number of countries, pri-marily in Asia and Latin America.

Toward the end of 1993 and in early 1994, spreadson bonds narrowed appreciably, and demand for devel-oping country bonds, as well as equities, began to falldramatically. This coincided with increases in U.S.interest rates and adverse developments in several bor-rowing countries. In addition, highly leveraged'inves-tors were reported to have liquidated their positions indeveloping country securities in an effort to meet mar-gin requirements or to take profits. The slide in demandfor these bonds and equities continued through April1994, before recovering moderately in May and June.

While countries with weaker economic performanceexperienced cutbacks in market access somewhat ear-lier than others, financing flows to all developingcountries, including those in Asia and stronger per-formers in Latin America, fell to very low levels byApril 1994. Both issuers and purchasers pulled backsharply in the wake of overall market uncertainties.Bonds placed after February 1994 tended to be fromonly the better credit risks and to carry floating interestrates and shorter maturities. While highly leveragedinvestors unwound most of their positions, it appearsthat institutional investors generally maintained theirholdings, even if they curtailed their demand for newbond and equity issues.

Durability of Market Re-Entryand Pricing of Risk

The increase in private financing to developingcountries over the past few years and the market's abil-

2International bond and equity flows amounted to $71 billion in1993 ($33 billion in 1992); net foreign direct investment flowsamounted to $58 billion in 1993 ($39 billion in 1992). Direct pur-chases of equity and bonds by nonresidents in local markets are notincluded because of the lack of sufficient data.

3The expansion of the investor base is discussed further in Gold-stein and others (1994).

2


Private Financial Flows

Chart 1. Selected Developments in Secondary Market Prices DuringNegotiations of Bank Restructuring Packages

Sources: Salomon Brothers; ANZ Grindlays Bank; and IMF staff estimates.'Per unit of claim.

ity to rebound from a moderate correction in 1992engendered optimism about the sustainability of theprocess of market re-entry.4 While the sharp correctionin early 1994 raised fresh doubts, the emergence of a

4The 1992 market correction is described in Goldstein and others(1993).

3

recovery later in the year reinforced that optimism. Asnoted in previous reports in this series, three conditionsappear basic to sustaining private flows to developingcountries: an expanded investor base, appropriate pric-ing and assessment of risk, and continued implementa-tion of sound policies that help match future debt-servicing requirements to payments capacity. Progresscontinues to be made along these lines.


I OVERVIEW AND CURRENT ISSUES

Chart 2. Maturing Bonds of Developing Countries(In millions of U.S. dollars)

Sources: International Financing Review; EuroWeek; and IMF staffestimates.

The expansion of the investor base in 1993 was partof a trend toward the globalization of portfolios. Rela-tive stability of the investor base in 1994, despite themarket correction, has been encouraging. As newinvestor groups come into the market, flows and pricesof developing country securities could nevertheless besubject to considerable volatility, especially if newinvestors have poorer information and different liquid-ity preferences than existing investors. Although anumber of developing countries have experiencedincreased volatility in security prices following theopening of local stock markets to foreign investors, adiversified and stable investor base can be expectedover time to promote reduced fluctuations in assetprices, particularly as information becomes morewidely disseminated.

The sharp run-up in the prices of developing countrysecurities in late 1993 and early 1994 raises questionsabout the pricing of risk. It appears that the marketranks countries in a manner that is broadly consistentwith their recent economic performance and immedi-ate prospects. It is unclear, however, whether investorsdifferentiate carefully among different borrowers. Ingeneral, and as would be expected, issuers from coun-tries that previously rescheduled their debt tend to payhigher spreads, while those from countries withstronger growth and better inflation performance tendto pay lower ones. Beyond such broad differentiations,however, the market may be slow to make finer dis-tinctions. For example, yield spreads on bonds ofcountries that ran into difficulties in late 1993 wereslow to react to the deterioration in their economic per-formance until it was widely recognized; at that point,the response was quite significant. Investors also havebeen attracted to developing country securities becausereturns historically have not closely tracked pricedevelopments in industrial country financial markets.Under these circumstances, the diversification of port-folios by including developing country securities couldraise the portfolios' expected returns for a given levelof risk. Experience during the market turbulence in1994, however, suggests that asset returns of develop-ing and industrial countries tend to become moreclosely related in turbulent periods.

To maintain market access on reasonable terms,countries need consistently to implement strongmacroeconomic and structural policy programs. Main-tenance of such programs is likely to be particularlyimportant in the period ahead, given the high degree ofuncertainty with regard to interest rate movements inthe industrial countries. Developing countries are alsonow entering a period of rising debt amortization as thebullet repayments on bonds issued earlier this decadeare beginning to fall due (Chart 2). The increasing inte-gration of international financial markets also meansthat interest rates and equity prices in developing coun-

tries will become more sensitive to developments inasset prices in the major industrial countries. A moreopen international environment will have to be takeninto consideration by developing countries in deter-mining the appropriate stances of monetary, fiscal, andexchange rate policies. While at times it might appeartempting to supplement such policies with capital con-trols, such actions would ultimately tend to be counter-productive. To provide a basis for sustained portfoliocapital flows, continued efforts are also needed tostrengthen financial markets in developing countries.Structural reforms to increase market transparency andreduce transaction costs and risks are important in fos-tering investor confidence. Intermediation of capitalflows through the banking system points as well to theneed for adequate banking regulation and supervision.

Developing countries can improve the mix of exter-nal financing by taking steps to remove obstacles tonon-debt-creating capital flows. In recent years, inter-national equity placements and direct purchases ofequities by foreigners in domestic stock markets haverisen sharply. At the same time, there has also been asurge in foreign direct investment inflows. These flowsgenerally entail longer-term commitments on the partof foreign investors. Nevertheless, foreign directinvestment flows, taking into account reinvested andrepatriated earnings, also exhibit some of the samecharacteristics as other flows during periods of domes-tic macroeconomic instability. While investment posi-tions are rarely liquidated rapidly, the totality oftransactions associated with foreign direct investmentmay give rise to net outflows of funds.

4


IICommercial Bank Debt Restructuring

Overview

rogress has been made by a number of the heavilyindebted middle-income developing countries in

regularizing their relations with commercial bank cred-itors. To many observers, the conclusion of the Brazil-ian debt package in April 1994 is seen as marking theend of the debt crisis that began in August 1982 whenMexico announced its inability to service its externalobligations to commercial creditors. Along with Brazil,Bulgaria, the Dominican Republic, Jordan, Poland,Sao Tome and Principe, and Zambia completed debt-and debt-service-reduction operations or comprehen-sive debt buy-backs over the past year. Ecuador and itsbank creditors also reached agreement, and the restruc-turing package is scheduled to be completed before theend of 1994. By that time, 21 countries will have con-cluded debt- and debt-service-reduction operationsrestructuring $170 billion of original commercial bankclaims (Tables 1 and A2), or 75 percent of commercialbank debt owed by heavily indebted developing coun-tries at the end of 1989.5 Debt reduction achieved willamount to an estimated $76 billion at a cost of about$25 billion.

Allocations to the different options available in bankpackages have varied depending (among other things)on explicit limits imposed by debtor countries, oninterest rate developments following the issuance ofterm sheets, on creditors' perceptions of country credi-tor risks, and on the prospect of capital gains (Tables 2and A3). In general, packages have been cost-effectivein that the cost per unit of debt reduction obtained hasbeen broadly in line with prices prevailing in the sec-ondary market at the time agreements in principle werereached (Tables 3 and A4).

Following the trend of previous years, debt conver-sion activity was less buoyant in 1993. This partlyreflected a shift in emphasis in the privatization pro-gram in Argentina, which accounted for about half ofdebt conversions in 1992, as priority shifted fromreducing foreign commercial bank debt to reducingforeign currency denominated domestic debt instru-

ments. In addition, the decline in debt conversionsreflected the rise in secondary market prices for thedebt of many countries and the reduced scale of privat-izations, owing to countries having substantially com-pleted their schemes.

Recent Bank Packages

While Argentina's debt- and debt-service-reductionpackage closed on April 7, 1993, about 6 percent of eli-gible principal (amounting to $19.4 billion) and 100percent of past due interest ($8.6 billion) wereexchanged at a later date because of reconciliationproblems. All collateral and guarantees (totaling $3.1billion), however, were deposited with the collateralagent (the Federal Reserve Bank of New York), and thedownpayment on past due interest ($0.7 billion) andthe bonds related to unreconciled debts were depositedwith the escrow agent (the Bank of England) on theclosing date. Reconciliation of the remaining principalwas completed on September 27, 1993, and the releaseof bonds covering past due interest and the corre-sponding cash payments was made in four tranches:the first on October 29, 1993 (83 percent); the secondon December 29, 1993 (14 percent); the third on Feb-ruary 28, 1994 (3 percent); and the fourth and last onApril 28, 1994 (negligible amounts).

Brazil completed one of the largest and most com-plex debt- and debt-service-reduction operations onApril 15, 1994. Completion of the deal came almosttwo years after the agreement in principle was reached,following four extensions of the closing date. Since anarrangement with the Fund was not likely to be ineffect at closing (this had been a condition in the termsheet), a waiver from bank creditors had to berequested. This waiver was granted on March 24,1994. The process was also delayed because of prob-lems in obtaining full creditor participation.6

The deal restructured $40.6 billion in eligible princi-pal and $6.0 billion in past due interest. Out of a menuof six options, only five were actually used. Creditorsaccepted the May 1993 limits suggested by the author-ities on the amount of debt allocated to the par and new

5 A further 10 percent of the stock of commercial bank debt out-standing in 1989 has been extinguished through debt conversionsand other mechanisms. Of the remaining debt that has not beenrestructured, Peru and Panama account for more than 20 percent,and four low-income countries (Cameroon, Congo, Cote d'lvoire,and Nicaragua) account for another 17 percent.

6In the end, one major creditor, a large nonbank investor holdingroughly $1.4 billion of Brazil's debt, refused to participate in thedeal. That creditor subsequently filed a law suit in the United Statesto force payment of past due interest on Brazil's original debt andto accelerate payments of principal arrears.

5

P


COMMERCIAL BANK DEBT RESTRUCTURING

Table 1. Commercial Bank Debt- and Debt-Service-Reduction Operations, 1987-July 19941

(In millions of U.S. dollars)

Argentina (1992)Bolivia

(1987)(1993)

Brazil (1992)Bulgaria (1993)Chile (1988)Costa Rica (1989)Dominican Republic (1993)Ecuador(1994)6

Guyana (1992)Jordan (1993)Mexico

(1988)(1989)

Mozambique (1991)Niger(1991)Nigeria (1991)Philippines

(1989)(1992)

Poland (1994)Sao Tome and PrincipeUganda (1993)Uruguay (1991)Venezuela (1990)Zambia (1994)

Total

DebtRestructuredUnder DDSR

Operation3

(1)

19,397643473170

40,6006,186

4391,456

7764,520

69736

51,9023,671

48,231124111

5,8115,8121,3394,4739,918

10152

1,60819,700

200

170,170

Debt

Buy-back(2)

—331253

78—

798439991272

—69——

—124111

3,3902,6021,3391,2632,454

10152633

1,411200

13,986

Debt

reductionDiscountexchange4

(3)

2,35623218250

4,9741,865

—177

1,180—84

7,9531,1156,838

————

—2,401

———

511—

21,733

and Debt-Service

Debt-servicePrincipal

collateralizedpar bond4

(4)

Reduction (DDSR)2

reduction

Otherpar bond4

(5)

Prepaymentsthrough

collateral-ization

(6) 0

(Concluded agreements)

4,29129

293,996

—

——

826—

1116,484

6,484——

651516

516779

——

1602,012

—

19,855

——

337421

__101—————

————

116

11672———

471__

1,519

2,73920

713

3,891443

__3663

595—

1177,777

5557,222

——

352467

467602——95

1,639—

18,835

Totalr)=(2)+. .+(6)

9,386612442170

13,1983,527

4391,128

5112,600

69312

23,1731,670

20,544124111

4,3933,7011,3392,3626,309

10152888

6,043200

75,927

Total Debt andDebt-Service

Reduction/Debt

Restructured(7)/(l)

48.495.293.5

100.032.557.0

100.077.565.857.5

100.042.544.645.542.6

100.0100.075.663.7

100.052.863.6

100.0100.055.230.7

100.0

44.6

Cost ofDebt

Reduction5

3,059613526

3,900652248196149583

10118

7,677555

7,1221223

1,7081,795

6701,1251,866

118

4632,585

22

25,146

Source: IMF staff estimates.'Debt and debt-service reduction are estimated by comparing the present value of the old debt with the present value of the new claim, and adjusting for

prepayments made by the debtor. The methodology is described in detail in Annex I of Private Market Financing for Developing Countries (Washington:International Monetary Fund, December 1992). The amounts of debt reduction contained in this table exclude debt extinguished through debt conversions.

2The figure for debt-service reduction represents the expected present value of the reduction in future interest payments arising from the below-marketfixed interest rate path on the new instruments relative to expected future market rates. The calculation is based on the estimated term structure of interestrates at the time of agreement in principle.

3Includes debt restructured under new money options for Mexico (1989), Uruguay (1991), Venezuela (1989), and the Philippines (1992); the Philippines'(1989) new money option was not tied to a specific value of existing debt.

4Excludes prepayment of principal and interest through guarantees.5Cost at the time of operation's closing. Includes principal and interest guarantees, buy-back costs, and for Venezuela, resources used to provide

comparable collateral for bonds issued prior to 1990. Excludes cash downpayments related to past due interest.6Closing of the operation has been delayed and is expected to take place in the first quarter of 1995.

money options and the minimum allocation for the dis-count bond. The final allocation was (1) 35 percent forthe discount bond; (2) 32 percent for the par bond; (3)22 percent for the capitalization bond with temporaryinterest reduction; (4) 6 percent for the new moneyoption; and (5) 5 percent for the front-loaded interestreduction bond (FLIRB). No allocation was made tothe restructuring option.

The cost of the enhancements required for the oper-ation is estimated at $3.9 billion, of which $2.8 billionin collaterals was delivered at closing, with the rest to

be phased in over a two-year period in four semiannualinstallments. Phase-in bonds and partly collateralizedbonds were issued at closing and were to be exchangedfor fully collateralized instruments over the next twoyears.7 The Bank for International Settlements is ser-ving as the collateral agent. Financing for the operationcomes from $0.4 billion collected in the new money

7These phase-in and partly collateralized bonds apply only to thepar and discount bond options. The FLIRBs were fully collateral-ized at closing, and the other options did not require collateral.

6


Overview

Table 2. Bank Menu Choices in Debt-Restructuring Packages(In percent of total eligible bank debt)

ArgentinaBoliviaBrazilBulgariaCosta Rica

Dominican RepublicEcuadorJordanMexicoNigeria

Philippines (1989)1

Philippines (1992)PolandUruguayVenezuela

Total2

Debt Reduction

Buy-back

46—1363

35

——62

100282539

7

8

Discountexchange

34353560—

65583343—

—54—

9

34

Debt-Service

Principalcollateralized

parexchanges

661932——

42674738

42183338

39

Reduction

Other parexchanges

52737

——

17

—15

5

NewMoney

—6

——

11—

134

2831

9

OtherNon-Debt- andDebt-Service-

ReductionOptions

_22——

——

—

——

5

Sources: National authorities; and IMF staff estimates.]The agreement included new money but was not tied to a specific amount of eligible debt.2Weighted average.

option and from Brazil's own resources. Zero-couponU.S. Treasury securities used as collateral for the dealwere purchased by Brazil in the secondary market.

In one of the fastest completions of a menu-baseddebt- and debt-service-reduction operation, Jordanconcluded a deal with its banks on December 23, 1993,two weeks after the formal signing of the agreementand less than six months after reaching an agreement inprinciple. The package covered eligible principal of$740 million and past due interest of $120 million.Following considerable official buy-backs in the sec-ondary market before the commitment date (about 12percent of the total bank debt outstanding), the finalallocation of eligible principal was (1) 67 percent forthe par bond; (2) 33 percent for the discount bond; and(3) negligible amounts for the (below-market price)buy-back. The $150 million cost of the operationincluded $29 million for cash payments on past dueinterest. Financing was covered entirely by the coun-try's own resources.

Bulgaria reached an agreement in principle with itscommercial bank creditors on November 24, 1993. Aterm sheet was distributed to banks on March 11, 1994,and the package was completed on July 29, 1994. Eli-gible principal amounted to $6.2 billion, including $1.9billion in short-term debt. The menu consisted of threeoptions: (1) a 50 percent discount exchange; (2) aFLIRB; and (3) a buy-back at 25 3/16 cents on the dollarper unit of claim. Partial interest payments were re-sumed shortly after the agreement in principle was

reached. Retroactive to March 1993, the rate paid was5 percent of amounts due, or roughly $30 million aquarter.

The discount bond involves a 30-year bullet repay-ment and bears an interest rate of % over the Londoninterbank offered rate (LIBOR). The principal is fullycollateralized, and there is a 12-month rolling interestguarantee at 7 percent. The FLIRB carries an 18-yearmaturity with eight years of grace. The interest ratestarts at 2 percent in the first year and increases in stepseach year, reaching 3 percent by year seven; subse-quently, it reverts to a market rate of % over LIBORuntil maturity. There is no principal guarantee, but thebond has a 12-month rolling interest guarantee at 2.6percent (for the seven years of interest reduction), cap-italizing earned income until it reaches 3 percent.Equal amortization payments are due semiannually.Special issues of discount and FLIRB bonds will bemade to cover 30 percent of the short-term debt allo-cated to the different options. These bonds carry aninterest rate 1/2 of 1 percent higher than that on bondsexchanged for medium- and long-term debt. Somedebt reduction on past due interest is achieved througha lowering of the interest rate for capitalization pur-poses. The package also includes a value recoveryclause on the discount bonds linked to the overall per-formance of the Bulgarian economy.

The term sheet limited the allocation for the FLIRBsto 30 percent. Rebalancing was not needed by the com-mitment date (May 18, 1994), since the allocation was

7


COMMERCIAL BANK DEBT RESTRUCTURING

Table 3. Buy-Back Equivalent Prices in Debt- and Debt-Service-Reduction Operations1

(In percent of face value)

ArgentinaBrazilBulgariaCosta Rica2

Dominican Republic

EcuadorJordanMexico2

Nigeria2

Philippines (1989)

Philippines (1992)PolandUruguay2

Venezuela2

Total4

Debt

Buy-back

251625

39

4050

52415645

41

ReductionDiscountexchange

252618—28

192533——

14—35

27

Debt-Service Reduction

Principalcollateralized

parexchange

3236—

—

29413936—

45224538

36

Other parexchanges

198

2 9 3

—

—

—

28——25

21

Overallpackage

3030181826

2435363950

48255338

33

SecondaryMarket Price

at Time ofAgreementin Principle

3735271923

2339444050

53395446

37

Source: IMF staff estimates.'The buy-back equivalent price for a debt exchange is the total value of enhancements as a proportion of the total reduction in claims

payable to banks, including effective prepayments through collateralization, evaluated at prevailing interest rates at time of agreement inprinciple. This is the price at which the debt reduction achieved through a debt exchange is equivalent to the debt reduction under a buy-backat this price.

2The calculations include estimates of value recovery clauses.3Weighted average of the buy-back equivalent price of the series A par bond (33 cents), the series B par bond (0 cents), and the series A

past due interest bond (119 cents).4Weighted average.

(1) 60 percent for the discount bond; (2) 27 percent forthe FLIRB; and (3) 13 percent for the buy-back. Inter-est arrears estimated at about $1.9 billion wereincluded in the operation. A cash payment of 3 percentwas made, with remaining amounts (other thanamounts purchased in connection with the buy-backoption) rescheduled in the form of a 17-year uncollat-eralized bond bearing a market interest rate of % overLIBOR and a grace period of seven years. Amortiza-tion is in semiannual installments on a back-loadedschedule. The cost of the operation was $716 million,which was initially financed by the country's ownresources. However, after the closing of the operation,Bulgaria requested and received additional financialassistance from the Fund and the World Bank in sup-port of the debt- and debt-service-reduction operation.

On February 14, 1994, the Dominican Republic for-mally signed an agreement to restructure $1.1 billionof its commercial bank debt, including interest arrearsof $320 million. The operation closed on August 31,1994. After an initial allocation failed to provide the 50percent debt reduction included in the term sheet, cred-itors were asked to rebalance their commitments. Thefinal allocation on eligible principal was 65 percent tothe discount exchange, 35 percent to the buy-back, andno allocation to the FLIRB. The up-front cost of the

operation was about $190 million, financed entirely bythe country's own resources.

A highly innovative and somewhat controversialagreement in principle was reached between Polandand its bank advisory committee on March 10, 1994.The larger-than-anticipated debt reduction entailed inthe agreement produced a significant decline in theprice of Polish debt in the secondary market after theannouncement. The agreement restructured $12.7 bil-lion, comprising virtually all of Poland's outstandingcommercial bank debt. A term sheet was distributed tobanks on May 23, 1994, and commitments were dueon June 29, 1994. That date was subsequentlyextended to improve chances that approval of a waiverfor a buy-back would be received from creditors hold-ing 95 percent of the debt. That figure was achieved,and the deal was completed on October 27, 1994. Eli-gible principal amounted to $9.9 billion, of which $1.1billion was short term. The menu for eligible principalincluded six options, four for medium- and long-termdebt and two for short-term debt. The options formedium- and long-term principal were (1) a buy-backat 41 cents on the dollar per unit of claim; (2) a 45 per-cent discount bond exchange; (3) a below-marketinterest rate par exchange; and (4) a new moneyoption, whereby in exchange for 35 percent of new

8

II


Overview

money, old claims are rescheduled on somewhat morefavorable terms than in the other options. The optionsfor short-term principal were (1) a buy-back at 38 centson the dollar per unit of claim and (2) a below-marketinterest rate par bond exchange, with an interest rateprofile marginally higher than that for the par bondexchange for medium- and long-term principal.

The discount bond in the Polish package involved a30-year bullet repayment bearing a market interest rateof % over LIBOR. Principal was fully collateralized.The par bond also involved a 30-year bullet repaymentcarrying a prearranged interest rate profile starting at2.75 percent in year one, rising in increments to 5 per-cent in year twenty-one, and remaining at that levelthereafter. The interest rate profile on the short-termpar exchange was somewhat higher, in that the interestrate rises at a somewhat faster rate after year one. Bothpar bonds included full principal collateral. The newmoney option involved the exchange at par of up to 5percent of eligible principal for a debt conversionbond, with the creditor providing $35 in new moneyfor each $100 in debt tendered. The 25-year debt con-version bond had no principal collateral and carried asub-market interest rate starting at 4.5 percent in yearone, increasing to 7.5 percent in year eleven and there-after. This was an innovative feature of the package; inthe past, these types of bonds involved no debt- ordebt- service reduction. This bond has a grace periodof 20 years with equal semiannual amortization pay-ments. The 15-year new money bond also has no prin-cipal collateral. It carries a market rate of % overLIBOR, a grace period of ten years, and an even amor-tization schedule. None of the bonds in the package iscovered by interest guarantees.

Bank creditors allocated their medium- and long-term debt as follows: (1) 24.6 percent to the buy-back;(2) 60.8 percent to the discount exchange; (3) 10.3 per-cent to the par exchange; and (4) 4.4 percent to the newmoney option. Allocation of the short-term debt was asfollows: (1) 26.1 percent to the buy-back and (2) 73.9percent to the par exchange.

In the Polish package, past due interest of $3.5 bil-lion was effectively subject to debt and debt-servicereduction. Debt reduction of about 15 percent wasobtained by reducing the capitalization rate on interestarrears. Debt-service reduction was also obtainedthrough a below-market interest rate for the associatedbond. In theory, there were five modalities for dealingwith past due interest, two for interest arrears on short-term principal and three for interest arrears onmedium- and long-term principal. The options forshort-term interest arrears are exactly the same as theoptions for short-term principal. The three options forinterest arrears on medium- and long-term principalincluded (1) a cash payment corresponding to 85 per-cent of interest due in December 1989 to regularizeprevious anomalies and catch up on payments of inter-est due on medium- and long-term principal accruingsince May 1993 (about $160 million); (2) a buy-back

at the same price as medium- and long-term principal;and (3) a bond covering past due interest at below-market rates. The latter bond has a 20-year term and isuncollateralized; it carries an interest rate that starts at3.25 in year one and rises to 7 percent in year nine andthereafter. The amortization schedule on these bondsprovides for eight years grace followed by back-loadedsemiannual payments. Starting in March 1994, partialinterest payments on medium- and long-term principalwere increased to 30 percent of interest due. The finalagreement did not include a rebalancing clause, exceptfor the limit of 5 percent of eligible principal on thenew money option and an undetermined maximum onthe buy-back in the event that insufficient financingwas available. There was no currency option or valuerecovery clause. Implementation of a debt-conversionprogram is expected. The cost of the operation was$2.1 billion, financed with resources from the Fund,the World Bank, the new money option, and Poland'sown contribution.

Ecuador reached an agreement in principle with itsbank advisory committee on May 2, 1994, to restruc-ture debt amounting to $7.4 billion. A termsheet wascirculated to banks on June 14, 1994. The menu ofoptions for eligible principal, amounting to $4.5 bil-lion, includes (1) a 45 percent discount exchange; and(2) a par exchange at a submarket interest rate. The dis-count bond has a 30-year term with a bullet repayment;it bears a market interest rate of % over LIBOR andincludes full principal collateral and a 12-monthrolling interest guarantee at 7 percent. The par bondalso involves a 30-year bullet repayment; it bears apredetermined below-market interest rate profile start-ing at 3 percent in year one, increasing to 5 percent byyear eleven, and remaining at that rate for the balanceof the bond's maturity. As with the discount bond, theprincipal of the par bond is fully collateralized, but the12-month interest guarantee was fixed at 3.75 percentin year one, with income earnings capitalizing until 5percent is achieved. The termsheet does not includeany mandatory allocation or rebalancing clauses. Italso does not include a currency option or a valuerecovery clause. Creditors have chosen to allocate 58percent of their exposure to the discount exchange and42 percent to the par exchange.

Interest arrears on Ecuador's bank debt is estimatedat $2.9 billion. Implicitly, this estimate involves somedebt forgiveness, because past due interest is calcu-lated from the end of October 1986 to the end ofDecember 1993 at three-month LIBOR plus 13/1instead of the interest rates on the original loan agree-ments.8 From January 1994 through the closing date,interest will accrue at a 4 percent fixed rate. The agree-ment calls for interest arrears to be treated separatelythrough (1) a cash payment of $75 million; (2)issuance of a 10-year uncollateralized interest equal-

8Original contractual interest rates on Ecuador's debt were gen-erally higher, with some loans priced at LIBOR plus 2%.

9


II COMMERCIAL BANK DEBT RESTRUCTURING

ization bond for $191 million to regularize previousdiscriminatory payments to creditors; and (3) a 20-yearuncollateralized past due interest bond bearing a mar-ket interest rate of % over LIBOR and a ten-year graceperiod. The amortization schedule on the latter bondconsists of back-loaded semiannual payments. ThePDI bond also introduces the innovation of having theoption to capitalize a declining fraction of interest duein the first six years. Partial interest payments wereresumed in May 1994 at a rate of $5 million a month(retroactive to January 1994). The up-front cost of theoperation has been estimated at about $658 million.Financing is expected to come from the Fund, theWorld Bank, official bilateral sources, and the coun-try's own resources. The deal is scheduled to close inDecember 1994.

Sao Tome and Principe concluded a comprehensivebuy-back of commercial bank debt covering $10.1 mil-lion of claims (about 87 percent of eligible debt) at 10cents on the dollar in August 1994. The $1.0 millioncost of the buy-back was entirely financed by the DebtReduction Facility for IDA countries.

Zambia completed a comprehensive buy-back at 11cents per dollar of principal and past due interest intwo transactions, the first on July 26, and the secondon September 14, 1994. Eligible principal coveredamounted to about $200 million (about 79 percent ofeligible debt) and included commercial bank debt, aswell as trade and supplier credits. The cost of the oper-ation thus far has been roughly $25 million, financedby a $13 million grant from the debt reduction facilityfor IDA countries and grants from Germany, theNetherlands, Sweden, and Switzerland. Further buy-backs could take place by the end of 1994, which is theexpiry date for Zambia's grant facility to finance theoperation. An innovation in this buy-back operation isthat, due to initially low levels of creditor participation,the operation has taken place in several tranches,instead of the usual single transaction.

South Africa agreed on a fourth and final reschedul-ing arrangement with its commercial banks at the endof September 1993. The arrangement, which becameeffective at the beginning of 1994, rescheduled thosedebts (some $5 billion) that were still subject to the"standstill" on repayments imposed in 1985. Thearrangement involved a cash payment of 10 percent ofoutstanding debt, with the remainder being resched-uled for eight years on a graduated schedule. Interestmargins were to be negotiated between South Africandebtors and foreign creditors, with margins in excessof 2.5 percent over the relevant base rate requiringapproval by the authorities under exchange controlarrangements.

A rescheduling agreement between Gabon and itscommercial bank creditors was signed on May 26,1994 and became effective on July 1, 1994. The agree-ment covers the principal on debts contracted beforeSeptember 1986 (which amounts to $100 million).These debts are rescheduled for ten years with 2 1/2 years

of grace. Interest arrears accumulated since 1986 (esti-mated at $50 million) were also rescheduled but atshorter maturities. This operation covered most of thecountry's commercial bank debt.

On July 30, 1993, a preliminary rescheduling agree-ment was reached between Russia and its bank credi-tors. This agreement rescheduled the entire stock ofpre-cutoff date debt with a ten-year maturity and afive-year grace period. Russia agreed to pay $500 mil-lion toward interest accrued but unpaid through the endof 1993. Remaining interest arrears were expected tobe rescheduled on the same terms as pre-cutoff dateprincipal. In the event, Russia did not make paymentson interest, and the agreement did not come into effect.Major stumbling blocks included the Russian authori-ties' refusal to waive sovereign immunity and ques-tions regarding which official Russian agency shouldsign the agreement. These issues were finally resolvedin October 1994, and the agreement was scheduled tocome into effect by the end of 1994, following Russianpayment of $500 million on past due interest in 1993,as was previously agreed.

Debt-Conversion ActivityAfter reaching a peak in 1990, debt conversions fell

over the last three years. In 1993, debt conversionswere at their lowest level since the outbreak of the debtcrisis over a decade ago (Table 4). High debt prices inthe secondary market, regularization of relations withcommercial bank creditors, and advances alreadymade in most privatization programs were responsiblefor declining conversion activity.

Argentina, which accounted for two thirds of con-version activity in 1992, shifted its privatization pro-gram to encourage exchanges involving foreigncurrency denominated domestic debt. With buoyantequity markets worldwide, Argentina also elected toprivatize part of the state oil company, YacimientosPetroliferos Fiscales (YPF), through an internationalshare placement, rather than by means of conversionsmade with commercial bank debt. Despite these devel-opments, Argentina still accounted for about one fourthof total bank debt conversions in 1993. While involv-ing only small amounts, debt conversions more thandoubled in Brazil during 1993, reflecting some pickupin interest by foreign investors in the country's privati-zation program. Debt conversion activity in Chile fellby one fourth during 1993, with the high price of com-mercial bank debt in the secondary market continuingto curtail demand for debt conversions under the for-mal mechanisms. All conversion activity took placethrough "informal" schemes, under which residentsretire their debt to the Central Bank by delivery ofChilean debt acquired in the secondary market.

Among other countries, conversions in the Philip-pines declined by about 15 percent as investors' inter-est dropped and debt prices edged up. Activity wasnegligible in Mexico and Nigeria owing to the suspen-

10


Secondary Market Developments

Table 4. Debt(In millions of U.S.

ArgentinaBrazilChileCosta RicaEcuador

HondurasJamaicaMexicoNigeriaPhilippines

TanzaniaUruguayVenezuelaYugoslavia

Total

Conversions1

dollars)

1987

3361,979

89127

91

1,680

450

__———

4,671

1988

1,1462,0962,940

44261

149

l,0563

40931

_

6050

135

8,782

1989

1,534946

2,76712432

3523

532257630

_

27544

1,369

8,820

1990

6,464283

1,0961745

3322

221217378

114

595681

10,067

1991

13268

8282

20

5236

1,956119489

2144

343631

4,741

1992

2,8252

95385—50

3914

344122379

3334

148

4,468

1993

371219298—

2

_

3—35

349

524887

1,464

First Quarter1994

530

2——

——

—

37

Sources: Central Bank of Argentina; Central Bank of Brazil; Central Bank of Chile; Ministry of Finance of Mexico; Central Bank of thePhilippines; Bank of Jamaica; Central Bank of Venezuela; and IMF staff estimates.

'Face value of debt converted under official ongoing schemes. Figures do not include large-scale, one-off cash buy-backs and debtexchanges.

2Excludes $0.3 billion from the privatization of the state power company deposited in a trust fund for later debt conversion as well as $0.5billion in foreign currency bonds of the Argentine Government (BOCONES) retired with the privatization of the state gas and power companies.

3Does not include an estimated $6-8 billion related to payment at a discount of private-sector debt following the August 1987 signing ofan agreement to restructure debt of the foreign exchange risk coverage trust fund (FICORCA).

sion of conversion programs. In Venezuela, politicaland financial uncertainties were factors behind a fur-ther reduction in conversion activity in 1993.

Secondary Market Developments

After remaining stable in the first quarter of 1993,secondary market prices for bank claims and Bradybonds rose sharply later in the year and into early 1994(Chart 3). The weighted average of prices for claims on15 heavily indebted countries peaked in January 1994at about 70 cents on the dollar (compared with 51 centsin December 1992), its highest level in the last sevenyears. The strength in secondary market pricesreflected improving economic situations in majordeveloping countries and greater investor interest inemerging market securities. Subsequently, prices fellsharply in response to higher interest rates in the UnitedStates and market reactions to adverse economic andpolitical developments in some major countries. More-over, during the 1993 run-up in prices, some investorgroups built up some highly leveraged positions; theirsubsequent need to unwind these positions added to thedrop in debt prices during the first half of the year. Bythe end of June 1994, the weighted average price forthe 15 countries had fallen to 58 cents on the dollar.

The stripped price of Argentina's restructured bankclaims rose by 82 percent in 1993, reaching about 80

cents on the dollar by the end of the year.9 Completionof the debt- and debt-service-reduction operation, goodeconomic prospects, the privatization of the largestpublic enterprise (YPF), and Congressional approvalof the social security reform accounted for the solidperformance of Argentine debt prices. By the end ofJune 1994, the price of Argentine claims had declinedin line with overall market developments to 62 centson the dollar.

Following market trends, the price of claims onBrazil also performed well in 1993. Debt pricesclimbed by 62 percent in 1993, reaching about 50 centson the dollar by the end of the year, despite politicaluncertainties and difficulties in completing the debtdeal. By the end of June 1994, the price of Brazilianclaims had fallen back to 41 cents on the dollar. InMexico, while the stripped price of its claims did notchange much over the first three quarters of 1993,prices jumped in the last quarter by about one third fol-lowing the approval of the North American Free TradeAgreement. By year end, Mexican Brady bonds weretrading at almost 90 cents on the dollar. Concernsresulting from an uprising in Chiapas and the assassi-nation of the leading presidential candidate, togetherwith the tightening of monetary policy in the United

9The stripped price is a measure of country risk. It is the ratio ofthe market value of unguaranteed payments to the present value ofsuch payments discounted at a risk-free interest rate.

11


II COMMERCIAL BANK DEBT RESTRUCTURING

Chart 3. Secondary Market Prices of Bank Claimson Selected Countries(In percent of face value)

Sources: Salomon Brothers; and ANZ Grindlays Bank.

States, led by June 1994 to a decline in the strippedprice of Mexican bonds to 73 cents. The stripped priceson Venezuela's debt increased by about one fourth toreach about 69 cents on the dollar at the end of 1993,despite political uncertainties. Concerns about thehealth of the banking system in the wake of the failureof a major bank and more generally about the country'seconomy, contributed to a sharp decline in Venezuelanclaims in the first half of 1994. By June, they hadfallen to 42 cents on the dollar.

In 1993 and early 1994, considerable price specula-tion accompanied reports that various countries weremaking progress in their discussions with commercial

banks on restructuring agreements. In the case ofEcuador, the price of its debt (including past due inter-est) increased by 84 percent in 1993 to reach a level ofabout 53 cents on the dollar at the end of the year. ForPeru, expectations of a debt-conversion programlinked to privatization ran prices up sharply; the priceof Peruvian claims (including past due interest) rose byabout 250 percent in 1993 and closed the year at 69cents on the dollar. In both cases, prices slid in the firsthalf of 1994, falling to 40 cents and 48 cents, respec-tively, by the end of June.

Price developments on Eastern European countries'debt resembled the behavior of debt prices for otherindebted countries. Prices of claims on Eastern Euro-pean countries increased by about 150 percent to reachalmost 50 cents on the dollar by the end of 1993,before declining by one third in the first half of 1994.The announcement of Bulgaria`s agreement in princi-ple with commercial banks in November 1993 pro-duced a 50 percent increase in the price of its claims toabout 44 cents on the dollar; it fell to 33 cents by theend of June 1994. Expectations of a bank debt agree-ment for Poland contributed to a rise in the price ofPolish debt, which peaked at 51 cents on the dollar inJanuary 1994. It then dropped in line with the generalfall in debt prices; the decline accelerated followingthe announcement of the restructuring agreement inMarch 1994. After falling to 32 cents, it recovered to35 cents by the end of June.

There were indications of significant growth in thevolume of debt instruments trading in the secondarymarket during 1993. These instruments continue to berelatively liquid, as reflected in relatively tight bid-askspreads. Market analysts estimate that trading volumereached nearly $2 trillion in 1993.10 For short periodsof time during the turbulence in bond markets duringthe first half of 1994, however, trading was reported tohave slowed appreciably, with bid-ask spreads widen-ing and dealers at times being reluctant to quote prices.

10The Emerging Markets Traders Association (EMTA) estimatedvolume at $733.7 billion in 1992. EMTA is planning to implementa computerized trade-clearing system to verify bond and loantrades. The system is expected to be in place by January 1995 andwill provide uniform pricing as well as daily volume information,thus reducing transaction costs, contentious trade disputes, and thepossibility of error arising from manual processing.

12


IllRecent Developments in Private MarketFinancing

rivate market financial flows to developing coun-tries increased significantly in 1992 and 1993

(Chart 4). Bond and equity flows accounted for muchof the increase. The rapid expansion was mirrored in abroadening of the range of developing country borrow-ers attracting international investors, although portfolioflows continued to be concentrated in a few key coun-tries in Asia and Latin America. In contrast, medium-and long-term bank lending to developing countriesremained moderate; banks did demonstrate renewedinterest in such lending, but on a highly selective basis.

In 1994, the situation changed dramatically. Withhigher U.S. interest rates, as well as unfavorable eco-nomic and political developments in some major bor-rowing countries, bond and equity issuance bydeveloping countries plummeted between Februaryand April 1994. A modest recovery came in the follow-ing months, but new flows remained vulnerable, espe-cially because of the uncertain course of U.S. interestrates. Despite the market correction, however, portfo-lio flows to developing countries in the first half of1994 were still significantly higher than levelsrecorded in the early 1990s.

Bonds

country bond placements also increased from $111million in 1992 to $125 million in the first half of1993, and to $135 million in the second half of theyear. In particular, there were a number of sizableissues by borrowers in Latin America.

In the first half of 1994, volatile market conditionsled to a sharp decline in the volume of internationalbond issuance by developing countries. Bonds worth$26.1 billion were issued, most in the beginning of theyear and in June. Beginning in February, as bondyields rose throughout the world, both issuers andinvestors pulled back. For the first half of 1994 as awhole, the developing country share of total interna-tional bond issues fell to 12 percent. The decline wasparticularly notable for countries in Europe and LatinAmerica.

The terms on new issues for many developing coun-try borrowers improved throughout 1993 and into early1994. The average yield spread fell from 288 basispoints in the first quarter of 1993 to a low of 187 basis

Chart 4. Private Market Financing to DevelopingCountries(In millions of U.S. dollars)

Bond placements by developing country borrowersreached $59.4 billion in 1993, more than twice theamount placed in 1992 (Tables 5 and A5).11 There wasa strong acceleration in bond issuance in the final quar-ter of 1993; bonds issued in that quarter amounted to$23.7 billion, almost equal to total issuance activity in1992. This surge reflected a decline in U.S. interestrates combined with relatively high returns in emerg-ing markets. Both factors encouraged a broader rangeof mainstream institutional investors to participatemore actively in these markets. The continued imple-mentation of prudent macroeconomic policies andstructural adjustments in borrowing countries alsoimproved investors' confidence. In relative terms,developing countries continued to increase their shareof total international bond issuance from 7.1 percent in1992 to 12.4 percent in 1993, and to 20.1 percent in thefourth quarter of 1993. The average size of developing

"Includes reported private placements and notes issued underthe Euro-medium-term note programs. The figures differ fromOECD estimates, which have a narrower coverage.

Sources: International Financing Review; OECD; and IMF staffestimates.

1Medium- and long-term bank loan commitments only.

13

P


RECENT DEVELOPMENTS IN PRIVATE MARKET FINANCING

Chart 5. Yield Spreads at Launch for Unenhanced Chart 6. Secondary Market Yield Spreads on U.S.Bond Issues by Developing Countries1 Dollar Denominated Bonds by Selected Developing(In basis points) Countries

(In basis points)

Sources: International Financing Review; and Financial Times.1Reflect weighted averages.

points in the first quarter of 1994 (Chart 5).12 The aver-age spread widened sharply in the second quarter of1994 to 259 basis points. This increase occurreddespite the fact that bonds during this period wereissued primarily by borrowers with higher credit rat-ings and carried shorter maturities. The weighted aver-age maturity of bonds issued shortened to 6.3 years inthe first half of 1994, after lengthening from 5.4 yearsin the first quarter of 1993 to 7.2 years in the finalquarter of the year. Yield spreads in the secondary mar-ket for developing country bonds followed a similarpattern; notable increases were observed for bondsissued by Argentina, Brazil, Hungary, Mexico, Turkey,and Venezuela (Chart 6). A tightening of market condi-tions was also reflected in a sharp decline in secondarymarket prices for Brady bonds.

Yield spreads continued to vary considerably amongcountries. While borrowers without records of debt-servicing difficulties commanded lower spreads, mar-ket re-entrants were typically faced with spreads ofover 200 basis points in 1993 and the first half of 1994.Moreover, the spread for public sector borrowers con-tinued to be substantially lower than that for privatesector borrowers (Table A6). Reflecting the uncertainpath of U.S. interest rates, there was also renewedinterest in new issues bearing floating rates. In the first

12 throughout this chapter, yield spreads refer to the differencebetween the yield on a bond at the time of issuance and the yield onU.S. Treasury securities of comparable maturity or other compara-ble government securities if the bond is issued in other currencies.The U.S. Treasury security and other comparable governmentsecurities are used as a proxy for a risk-free return.

Source: Reuters.

half of 1994, floating rate notes accounted for some 20percent of total new issues, up from 8 percent in 1993.

Most of the recent bond issuance by developingcountries represents net capital inflows. Maturingdeveloping country bonds amounted to only $6.3 bil-lion in the period from 1991 to 1993, compared withtotal bond issues worth $96 billion. As of the end ofJune 1994, the total outstanding stock of internationalbonds issued by developing countries is estimated tostand at $117.5 billion, 42 percent of which wasaccounted for by private sector borrowers. Amortiza-tion payments on this stock of debt will rise sharply inthe next few years from an estimated $7.1 billion in1994 to a peak of $21 billion in 1998, as bullet repay-ments on bonds placed in the early 1990s fall due(Table A7).13 Payments are particularly concentrated ina few Western Hemisphere and Asian countries.

Although the range of borrowers continued to widenin 1993, developing country bond issuers remainedconcentrated in a few countries in Latin America, Asia,

13These estimates can vary somewhat depending upon whetherbondholders decide to take early redemption options for somebonds.

14

III


Bonds

Table 5. International Bond Issues by Developing Countries and Regions1


Developing countries

AfricaCongoSouth AfricaTunisia

AsiaChinaHong KongIndiaIndonesiaKoreaMacaoMalaysiaPakistanPhilippinesSingaporeTaiwan Province of ChinaThailand

EuropeCzech RepublicCzechoslovakia, formerHungarySlovak RepublicTurkey

Middle EastIsrael

Western HemisphereArgentinaBarbadosBoliviaBrazilChileColombiaCosta RicaGuatemalaMexicoPanamaPeruTrinidad and TobagoUruguayVenezuela

Memorandum itemsIssues under EMTN programs

ArgentinaBoliviaBrazilColombiaKoreaMexicoPhilippinesThailandVenezuela

Total bond issues ininternational bond markets

Shares of developing countriesin global issuance

1991

12,838

236—

236—

3,000115100227369

2,012

————

16017

1,960—

2771,186

—497

400400

7,242795

——

1,837200

—3,782

50——

578

375———

375—

—

297,588

4.3

1992

23,780

725—

725—

5,9171,359

185

4943,208

————60

610

4,561—

1291,242

—3,190

—

12,5771,570

——

3,655120

—6,100

100100932

1,21540

110

665—

400

333,694

7.1

1993

59,437

—

—

20,4013,0475,887

546485

5,864

954—

1,293—79

2,247

9,638697

—4,796

2403,9052,0022,002

27,3966,233

——

6,679433566

6010,783

30125140

2,348

3,713930

422100177

1,741150194—

480,997

12.4

I

10,109

—

—

2,230406657

30671

——

170——

296

2,863375—

1,363—

1,1251,0001,0004,017

335——

1,327—

—2,205

———

150

607—

62

545—

—

139,867

7.2

1993II

12,117

—

—

3,200651

—

—1,343

500—

175—36

495

1,257——

279—

978

—

7,559606

——

1,635333325

—4,136

——

140385

39350

110509390—

—

107,050

(In percent)

11.3

III

13,492

—

—

3,4811,209

69265—

725

——

190—43

557

1,988322—

1,280240145

1,0021,0027,0221,852

——

1,583—50

601,851

———

1,626

1,439450

10050

646—

194—

116,253

11.6

IV

23,719

—

—

11,391681

4,538481455

3,125

454—

758——

899

3,530——

1,873—

1,657

—

8,7983,440

• —

—

2,134100191

—2,591

3025—

187

1,274430

—150

84460150

—

117,827

20.1

I

17,668

877600

277

7,6451,5001,305

439699

1,273

230—

154—

3181,728

875——6921

785

1,9581,9586,3131,460

—10

1,095—

25050—

3,307

40—

100—

384—1035

189150———

139,820

12.6

1994II

8,443

_—

—

5,465872550195750580155735

45555

86558384

439250

—189——

—

2,539907

20—

100—83

—1,390

40———

695300

——

—395———

77,881

10.8

Sources: IMF staff estimates based on Euroweek, Financial Times, International Financing Review, Financial Market Trends, FinancialStatistics Monthly, and Organization for Economic Cooperation and Development.

'Including note issues under Euro medium-term notes (EMTN) programs.

15



and Europe. Latin American borrowers had the largestshare until they were surpassed by Asian borrowers inthe final quarter of 1993. Bond issues by Latin Ameri-can borrowers doubled to $27.4 billion in 1993,accounting for 46 percent of total issues by developingcountries. That figure declined in the first half of 1994to $8.9 billion, or 34 percent of total issues by devel-oping countries.

Mexico continued to be the leading borrower, rais-ing $10.8 billion in 1993 and $4.7 billion in the firsthalf of 1994. An increasing number of companiesplaced bonds, including several private and publicbanks. Moreover, a few firms floated quite sizableindividual issues during this period, including $1 bil-lion issues by CEMEX (Mexico's largest cement pro-ducer) in May 1993 and BANCOMEXT in January 1994.Mexican entities also opened up new currency sectors,with Mexico's launching of Latin America's first"Samurai" issue since the debt crisis, BANAMEX issuinga Mexican peso-denominated Eurobond, and NAFINSA(a Mexican development bank) placing a "Dragon"bond, marking the first time that a Latin Americannoninvestment grade borrower has been able to issuein that market.

Borrowers in Argentina quadrupled their bond issuesto $6.2 billion in 1993 and raised $2.4 billion in thefirst half of 1994. There were a number of new devel-opments. A $1 billion global sovereign bond wasissued in December 1993 at a spread of 280 basispoints, the first global bond ever issued by a develop-ing country borrower.14 In addition, the first significantconvertible bond by a private telephone companybased in a developing country was placed in March1994. Brazil also increased its bond issuance signifi-cantly in 1993, notwithstanding continued uncertaintyabout the course of its economic policies. All Brazilianbonds were issued by nonsovereign borrowers andincluded the first Euro-yen issue by a Latin Americanentity at a spread of 416 basis points. Venezuelan enti-ties also increased their borrowing activity in 1993;among others, a $1 billion bond was issued by PDVAmerica (a state oil company) at a spread of 210-218basis points, and the first intraregional bond was issuedsimultaneously in Colombia and Luxembourg. Mainlyreflecting the concerns of investors about the country'seconomic situation; however, no international bondswere placed by Venezuelan borrowers during the firsthalf of 1994.

In general, the range of Latin American borrowers inthe international bond market continued to broaden.Colombia, Guatemala, and Peru, and more recently

14Global bonds are issued simultaneously in several major inter-national markets and allow issuers to tap into broader demand andobtain lower rates than those available in a single market. Somemarket participants estimated that Argentina was able to reduce theinterest rate on the funds raised through the global issue by asmuch as 30 basis points.

Barbados, Bolivia, and Costa Rica, tapped the marketfor the first time in many years. Spreads ranged from215 basis points for Colombia to over 700 basis pointsfor Peru. At the same time, recent market re-entrantssuch as Chile, Trinidad and Tobago, and Uruguaymaintained their presence in the market.

Asian borrowers tripled their international bondissues to $20.4 billion in 1993. They also raised $13billion through this channel in the first half of 1994,despite overall market turbulence. As a result, theirshare in the total bond issues by developing countriesrose from 34 percent in 1993 to 50 percent in the firsthalf of 1994. The stock market booms in the region in1993 also led to a strong increase in convertible bondissues; of total bonds issued, the share of convertiblesrose from 18 percent in 1992 to 30 percent in 1993before falling in the first half of 1994. Hong Kongemerged as the leading borrower in Asia, followed byKorea. Together, these two countries accounted formore than half of the bonds placed by Asian entities in1993. The People's Republic of China also signifi-cantly increased its recourse to the international bondmarket. To facilitate market entry for Chinese enter-prises, after a six-year absence, the Governmententered the market directly in 1993 and placed threeissues intended to establish a benchmark for Chinarisk. In February 1994, the Government issued a 10-year, $1 billion global bond, which was priced at an 85basis point spread; the issue was predominantly pur-chased by U.S. investors. In 1993, India, Malaysia, andthe Philippines also tapped the international bond mar-ket for the first time in several years. Pakistan andMacao entered the market in the first half of 1994.Concerned about the country's overall debt profile,however, the Indian authorities moved in May 1994 torestrict convertible bond issues, except for companiesusing proceeds to restructure existing external debt.

European developing countries continued to step uptheir recourse to the international bond market in 1993,where they raised $9.6 billion. In the first half of 1994,however, bond issuance activity dropped dramatically,largely reflecting reduced placements by Hungary andTurkey. With increasing market concerns about eco-nomic conditions in these two countries, bond issuesby Hungary fell from $4.8 billion in 1993 to less than$0.3 billion in the first half of 1994, while issues byTurkey declined from $3.9 billion to $0.8 billion. TheCzech Republic and the Slovak Republic maintainedaccess to the market in the first half of 1994.

In the rest of the developing countries, only a hand-ful of borrowers have tapped the international bondmarket. Israel raised $2 billion in 1993 and another$2 billion in the first half of 1994 on exceptionallyfavorable terms because of guarantees provided by theU.S. Agency for International Development. In Africa,the Congo launched a $600 million ten-year bond, withinterest payments secured by oil receivables and prin-cipal collateralized by U.S. Treasury bonds. In addi-

16


III

Bond Pricing

tion, the Central Bank of Tunisia issued the first Samu-rai bond by an African country; the bond was launchedwith a spread of 221 basis points above the yield of arisk-free yen bond of comparable maturity.

Among developing country bond issuers, privatesector borrowers scaled back their internationalissuance activity in the first half of 1994, following thedoubling in volume that occurred in 1993. As a result,their share in total bonds issued by developing countryborrowers declined from 45 percent in 1993 to 26 per-cent in the first half of 1994. The lower issuance activ-ity was partly due to the sharp contraction inconvertible bond issues by entities in Hong Kong,which were adversely affected by a decline in stockprices. Bond issues by sovereign borrowers, whichtripled in 1993, declined in the first half of 1994, buttheir share of total bond issues rose from 27 percent to50 percent. Lower issuance by sovereign borrowerswas mainly accounted for by Hungary and Turkey.

Most bonds issued by developing countries contin-ued to be denominated in U.S. dollars, yen, anddeutsche mark. Bond issues in U.S. dollars accountedfor 74 percent of the total in 1993 and 81 percent in thefirst half of 1994 (Table A8). This high share partlyreflected both the greater appetite of U.S. investors forhigh-yielding, subinvestment grade securities and theimpact of relatively low U.S. interest rates. Also facili-tating bond issues in the U.S. market is Rule 144a,which exempts private placements from the disclosurerequirements of the Securities and Exchange Commis-sion (SEC) and permits qualified institutional buyers totrade privately placed securities without waiting theusually stipulated two-year holding period. In 1993,several borrowers in Hungary, Korea, and Mexicotapped the Yankee bond market for the first time.15

While the yen sector remained the second largest cur-rency sector for bonds issued by developing countryborrowers, its share declined from 13 percent in 1993to 10 percent in the first half of 1994. Deutsche markbond issues, principally by European and Latin Amer-ican borrowers, were subdued in 1993 and in the firsthalf of 1994.

Following the market turbulence in early 1994,developing country borrowers increased the use ofcredit enhancement techniques, such as bond-equityconversion options, collateralization, and put options(Table A9). The most widely used enhancement tech-nique was the bond-equity conversion option, espe-cially in Asia where convertible bonds accounted formore than half of bond issues in the first half of 1994.Put options were the second most widely used tech-nique; Latin American issuers were the principal users,possibly reflecting uncertainties about economicprospects in the region.

The expansion of the investor base was accompa-nied by an increase in the number of countries assignedcredit ratings by major rating agencies (Table 6). Dur-ing 1993 and the first half of 1994, Argentina, thePhilippines, the Slovak Republic, Trinidad andTobago, and Uruguay received initial subinvestment-grade ratings from the major U.S. credit rating agen-cies. Initial investment-grade ratings were alsoassigned to Colombia and Taiwan Province of China.In addition, Chile received an investment-grade ratingfrom Moody's in February 1994, making it the onlyLatin American country to have received such a ratingby the two major U.S. rating agencies. In March 1993,the Czech Republic became the only developing coun-try in Europe with an investment-grade rating, and thisrating subsequently was upgraded in May 1994. Otherinvestment-grade countries receiving upgraded ratingsduring 1993 and the first half of 1994 included Chile,China, Israel, Malaysia, and Singapore. Owing to dete-riorating economic conditions, conversely, Turkey wasdowngraded to a subinvestment grade rating in January1994, and its rating was reduced further a few monthslater. The major rating agencies also downgradedVenezuela in March and April 1994.

Bond Pricing

The rapid increase in the prices of developing coun-try bonds during 1993 raises some questions as towhether the markets were adequately pricing the riskof these securities. Moreover, the markets have attimes appeared to react slowly to changes in economicconditions in a country.16 In pricing bonds, the marketsare reported to use two basic approaches. Risk may bepriced on a relative basis, with bond yields set in rela-tion to some benchmark issue or to the securities ofother issuers judged to be of roughly comparable risk.Alternatively, market participants may attempt directlyto assess risk using a scoring system based on a set ofeconomic and political factors. Such scoring systemsmay vary widely in terms of their level of quantifica-tion, the factors considered, and the relative impor-tance assigned to individual factors over time. Allinvolve a high degree of judgment.

Observers suggest that Mexican bonds are fre-quently used as a benchmark, since Mexico is gener-ally viewed as one of the best credit risks among thosedeveloping countries that previously rescheduled debtsto private foreign creditors. To test this proposition,Granger causality tests were run on daily bond pricesfor sovereign issues by Argentina, Brazil, Hungary,Nigeria, the Philippines, Turkey, and Venezuela. The

15The Yankee bond market is the domestic U.S. market for U.S.dollar-denominated bonds issued by nonresident entities. Yankeeissues are subject to SEC registration and disclosure requirements.

l6Simple auto-regression tests of market efficiency were run onthe prices of U.S. dollar-denominated sovereign bonds ofArgentina, Brazil, Hungary, Mexico, Nigeria, the Philippines,Turkey, and Venezuela. In all cases, these tests suggest that themarkets are inefficient.

17



Table 6. Credit Ratings of Developing Country Borrowers1

Moody'sRating

S&PRating

Recent Changes

Singapore

Taiwan Province of China

Korea

Thailand

Malaysia

Hong Kong

China

Aa2

Aa3

Al

A2

A2

A3

A3

AA+

AA+

A+

A-

A

A

BBB

Chile Baa2

Trinidad and Tobago Ba2

Turkey Ba3

Argentina B1(Par discounts and bonds)

Brazil B2

BBB+

Israel

Czech Republic

Indonesia

India

Colombia

Hungary

Uruguay

NR

Baa2

Baa3

Ba2

Bal

Bal

Bal

BBB+

NR

BBB-

BB+

BBB-

BB+

BB+

NR

Venezuela(Conversion bonds)(Par and discount bonds)

Mexico(Par and discount bonds)

Slovak Republic

Philippines

Ba2Ba2Ba3

Ba2Ba3

NR

Ba3

BB-NRNR

BB+BB+

BB-

B B -

B+

BB-B2

NR

Moody's upgraded rating from Aa3 in May 1994.

Moody's assigned an Aa3 rating in March 1994.

Moody's upgraded rating from A3 in March 1993.

S&P (Standard & Poor's) assigned its BBB rating in February 1992, while Moody'sassigned its rating A3 in September 1993.

Moody's assigned a Baa2 first-time investment rating in February 1994.S&P upgraded from BBB in December 1993.

S&P upgraded sovereign rating from BBB in September 1993.

Moody's upgraded rating from Baa3 in May 1994.

S&P assigned first-time rating in July 1992.

S&P and Moody's assigned first-time ratings in July and August 1993, respectively.

Moody's and S&P assigned ratings in October 1993 and February 1994,respectively.

Moody's assigned first-time rating in February 1993.

S&P downgraded its ratings in March 1994, whileMoody's downgraded its rating in April 1994.

S&P assigned first-time rating in July 1992.

S&P assigned its first-time rating in February 1994.

First-time ratings assigned in July 1993. S&P revised outlook to positive fromstable in October 1994.

S&P and Moody's downgraded the ratings below investment grade in January 1994and March 1994, respectively, and downgraded several more times thereafter.

S&P assigned first-time rating in August 1993.

Sources: Financial Times; International Financing Review; and Salomon Brothers.1Ranked in descending order according to rating. Ratings by Standard and Poor's and Moody's Investor Service. The ratings are ranked

from highest to lowest as follows:

Investment gradeNoninvestment gradeDefault grade

Moody's

Aaa, Aa, A, BaaBa, BCaa, Ca, C, D

S&P

AAA, AA+, AA, AA- A+, A, A-, BBB+, BBB, BBB-BB+, BB, BB-, B+, B, B-CCC+, CCC, CCC-, CC, C

In addition, numbers from 1 (highest) to 3 are often attached to differentiate borrowers within a given grade.

18

III


Bond Pricing

tests used the price of the Mexican par bond as thebenchmark for Brady bonds and the price of a Mexicannew issue as the benchmark for Eurobonds. The resultssuggest that movements in the price of the Mexican parbond precede price movements in the par bonds ofArgentina, Brazil, and the Philippines (Table A10).The price movements of the Mexican par bond, how-ever, did not precede movements in either the prices ofthe Venezuelan or Nigerian par bonds, a result thatcould reflect country-specific factors.17 Price move-ments in the Mexican Eurobonds were found to pre-cede changes in the prices of most of the Eurobondsissued by the other countries sampled (Table Al l ) .

The pricing of a bond should be in line with that ofother bonds considered by the market as roughly com-parable in terms of risk. The relationship betweenprices on U.S. corporate bonds and on bond issuesfrom developing country sovereign borrowers with thesame credit rating can provide some indication of howthe markets view developing country risk (Chart 7).Deviations in the pricing of the two types of bonds,however, represent either mispricing of the riskiness ofdeveloping country bonds or market perceptions thatsuch bonds are in fact riskier than their U.S. corporatecounterparts (i.e., in the market's view, the rating agen-cies' ratings of developing country bonds are not accu-rate). IMF staff analysis indicates that Mexican andPhilippine par bond prices and Hungarian and TurkishEurobond prices do roughly track the prices of compa-rably rated U.S. corporate bonds, although prices forthe latter two bonds are more volatile.18 Argentinaappears to have undergone a sharp reappraisal by themarket of its creditworthiness in late 1992, and itsyield steadily approached that of the comparable U.S.corporates, until early 1994. In the case of Venezuela,market perceptions of its creditworthiness may haveadjusted much faster than the country's credit rating.The markets appear to have incorporated anotherdowngrading into their pricing of Venezuelan bondsafter the major credit rating agencies placed Venezuelaon a credit watch. The market also appears to considerthe unrated Brazilian and Nigerian par bonds as theequivalent of bonds rated below Caa.

The scoring systems used by market participantsattempt more systematically to consider country-specific factors in bond pricing. Countries are ranked

17In both countries, there was substantial deterioration in economicconditions and some political instability over the period tested.

18Since monthly price indices for subinvestment-grade U.S. cor-porates comprise only bonds with seven-year maturities, the analy-sis was conducted using Brady par bonds for the countries that haveissued these securities. These bonds have remaining maturities of 25years or more. A relatively constant differential between the pricesof Brady bonds and U.S. corporate securities would largely repre-sent a yield curve effect arising from the difference in the maturitiesof these two sets of bonds. For the Eurobonds analyzed, an adjust-ment had to be made to the prices of the developing sovereignbonds to factor in the effect of a declining yield curve as these secu-rities moved closer to maturity.

on the basis of a number of political and economicvariables, and these rankings are used to assess thespread between the yield on a developing country bondand that on a "risk-free" bond. Factors often consid-ered include (1) political conditions (e.g., the govern-ment's commitment to economic reform, its ability toimplement policies, and popular support); (2) macro-economic conditions (especially inflation, growthprospects, and fiscal policy); (3) structural reform; and(4) the country's balance of payments position andprospects. Data for the period 1989 to 1994 generallysupport the view that the market applies an ordinalranking of developing country sovereign bonds in linewith underlying economic fundamentals.19 Among theLatin American Brady par bonds, Mexico carries thelowest spread, followed by Argentina, Venezuela, andBrazil (Chart 8). The markets considered Venezuela abetter risk than Mexico prior to 1991, but since thenVenezuela's spread has increased to approach that ofBrazil. In contrast, the premium above Mexico paid byArgentina has declined steadily. The Philippines hasalso paid a spread higher than Mexico, and Nigeria'sspread has been above that of the Philippines. Overtime, though, the Philippine premium has narrowed,while Nigeria's spread has widened, reflecting differ-ences in the relative economic performance of the twocountries. Data from representative Eurobond issuespresent a more or less similar picture, taking intoaccount the different duration and liquidity characteris-tics of the bonds.20

The movement in the secondary market spreads overtime suggests a rough relationship with a country's rateof inflation and its level of foreign assets, perhapsbecause of the frequency of the availability of thisinformation. For example, a very simple examinationof the data reveals that the steady downward trend inthe spread on Mexican bonds appears to have coin-cided with a period of declining inflation and risingforeign assets (Chart 9). The recent widening of thespread on Venezuela's bonds roughly coincided with adrop in net foreign assets and lagged a deterioration ininflation performance. The spread on Turkish bondsfell to less than 200 basis points by February 1994,before rising precipitously in March 1994; this turn-around took place five months after gross official

19Unpublished work by William Cline at the Institute for Inter-national Economics has found on the basis of pooled cross-sec-tional data that countries that previously restructured bank debt andthose with higher inflation and lower export or per capita GDPgrowth tend to have higher spreads on their new bonds. Prelimi-nary regression analysis by IMF staff relating movements overtime of country bond spreads to various indicators of economicfundamentals, however, did not produce significant results, in partowing to the limited time period for which data are available.

20 A notable exception is the Venezuelan Eurobond. The lack ofresponse in the yield spread for this bond to the deterioration in thecountry's recent economic performance may reflect the fact thatthe issuer of the bond is the state-owned oil company, which maybe considered a better credit risk because of its external assets.

19



Chart 7. Comparison of Yields of Sovereign Bonds with Yields on U.S.Corporate Bonds(In percentage points)

20

III


Sources: Moody's; Reuters; and Salomon Brothers.1Venezuela placed on watch list by Moody's.2Venezuela downgRADED BY mOODY'S TO BA3.

3Turkey Placed on watch list.

4Turkey downgraded by Moody's to Ba1.5Turkey downgraded by Moody's to Ba3.

Equities

reserves began to fall but roughly coincided with areported surge in inflation (Chart 10). In the case ofHungary, the bond spread fell by roughly 200 basispoints between September and December 1993; it thenbegan to increase in early 1994, as foreign reserveassets declined and inflation turned up.

Equities

In contrast to bonds, the growth of equity place-ments in the international capital market moderated in1993, after expanding sevenfold between 1990 and1992 (Table 7). Issuance activity did pick up, however,in the final quarter of 1993, reflecting buoyant stockmarkets in Asia and Latin America. Internationalequity placements by developing countries increasedby 28 percent to $11.9 billion in 1993, but their sharein total international equity placements declined to 23percent from 41 percent in 1992. In the first half of1994, developing country equity issues declined onlymoderately to $6.9 million from $7.7 billion in the sec-ond half of 1993. The lower issuance activity wasaccompanied by a general decline in share prices inmajor developing country stock markets.

Most international equity placements have beenaccounted for by Latin American and Asian compa-nies. Latin American companies raised $5.7 billion inthe international equity market in 1993 and $2.1 billionin the first half of 1994. Argentina emerged as the lead-ing Latin American issuer, with issues increasing from$0.4 billion in 1992 to $2.8 billion in 1993. Issuesoccurred mainly through the vehicle of Americandepositary receipts (ADRs)21 and were predominantlyaccounted for by the privatization of YacimientosPetroliferos Fiscales (a state-owned oil and gas com-pany) which raised $2.4 billion. Equity issues by Mex-ican companies declined from $3.1 billion in 1992 to$2.5 billion in 1993, partly because of uncertainty overapproval of the North American Free Trade Agree-ment. Following approval, Mexican companies raised$1.7 billion in the final quarter of the year, mainlythrough ADR and global depositary receipt (GDR)programs;22 this included an $822 million GDR offer-ing by Grupo Televisa. Companies in Bolivia, Colom-bia, and Peru entered the market for the first time in1993, together raising $127 million.

Asian companies raised $5.7 billion in 1993 and$3.8 billion in the first half of 1994. In 1993, compa-nies from China were the leading issuers, raising $1.9billion, or double the amount raised in 1992. In addi-tion to "B" shares listed in Shanghai and Shenzhen and

21 An ADR is a U.S. dollar-denominated equity-based instrumentbacked by shares in a foreign company held in trust. ADRs aretraded like the underlying shares of stock on major U.S. exchangesor in the over-the-counter market.

22A GDR is similar to an ADR, but it is issued and traded inter-nationally.

Sources: Reuters; Salomon Brothers; and IMF staff estimates.

reserved for foreign investors, Chinese companies inJuly 1993 began issuing shares listed on the HongKong Stock Exchange, so-called H shares. Other majordevelopments included the first global equity place-ment by a Chinese company in July 1993 that com-bined ADRs and H shares, and the first equityplacement in August 1993 by a private Chinese com-pany on the Hong Kong Stock Exchange. Indian com-panies stepped up equity placements, raising over $1billion in early 1994, compared with $0.3 billion in1993, as they shifted away from convertible bonds totake advantage of the premium provided by a stockmarket boom. In light of the subsequent weakness inmarkets worldwide, however, Indian equity place-ments declined significantly. Indonesian entities, fortheir part, accelerated their equity issuance until March1994, when the authorities moved to stem capitalinflows. During the same period, a company in SriLanka entered the international equity market for thefirst time through GDRs, and entities from Bangladeshtapped the international equity market through smallissues denominated in local currency.

21

Chart 8.Comparision of Sovereign Bond Spreads(In basis points)



Chart 9. Comparison of Movements in Spreads and Economic Variables forMexico and Venezuela


22

III


Equities

Chart 10. Comparison of Movements in Spreads and Economic Variablesfor Hungary and Turkey


23



Table 7. International Equity Issues by Developing Countries and Regions(In millions of U.S. dollars)


AfricaGhanaMoroccoSouth Africa

AsiaBangladeshChinaHong KongIndiaIndonesiaKoreaMalaysiaPakistanPhilippinesSingaporeSri LankaTaiwan Province of ChinaThailand

EuropeHungaryPolandTurkey

Middle EastIsrael

Western HemisphereArgentinaBoliviaBrazilChileColombiaMexicoPanamaPeruVenezuela

Total equity issues ininternational equitymarket

Share of developing countriesin global issuance

1991

5,436

143

143

1,022—11

140

167200

—11

159125

—209

9191

—

6060

4,120356

—

3,764

—

15,548

35.0

1992

9,259

270—

270

4,732—

1,0491,250

240262150382

48392272

543145

6733

34

127127

4,063372

133129

3,05888—

283

22,632

40.9

1993

11,865

8—

8—

5,67319

1,9081,264

331604328—

564

613

72466

20217

1184

257257

5,7252,793

10—

27191

2,493

2642

51,654

23.0

I

1,000

_—

—

6533

115374

7428—

—41

—18

22

—

3838

307———

27280

—

4,300

(In

23.3

1993

II

3,200

_

—

84715

343—

67150—

5—

171

7224

2871

20

22

2,3042,095

—114

95

—

8,554

percent)

37.2

III

2,351

_

—

1,244—

550250137263

—

44—

——

—

—

189189

917380

—94

443

—

15,863

14.8

IV

5,312

8

8—

2,927—

900640194200150—

19401

—424

1729

164

88

2,197318

10—6364

1,674

2642

22,937

23.2

I

3,823

_

—

2,313—

36472

1,160342150—

27037—

116

330—

330

44

1,176197

30096

583

—

12,900

29.6

1994

II

3,090

466398

68

1,5283

247—

420—

209—49——

219380

150150

—

2020

927380

—7182

346

48—

15,600

19.8

Sources: IMF staff estimates based on Euroweek, Financial Times, International Financing Review (IFR), and IFR Equibase.

International equity issues by companies in the restof the developing world remained limited, with theexception of Turkey and Ghana. In the first half of1994, a Turkish automobile company (TOFAS) raised$330 million through ADRs and GDRs. Ashanti Gold-fields (a gold-mining company) in Ghana raised $398million through GDRs. Companies from Morocco andPoland entered the market for the first time in 1993with small issues.

Over the past few years, direct equity purchases byinternational investors on local exchanges havebecome another important source of equity inflows forseveral developing countries. Although comprehensivestatistics are not available, fragmentary informationsuggests that the direct purchases of equities have beenquite sizable. In addition, mutual funds have becomeincreasingly important sources of equity flows todeveloping countries. The number of so-called emerg-

24

III


Commercial Bank Lending

ing market mutual equity funds increased from 91 in1988 to 465 in 1992 and 573 in 1993. Total net assetsin these funds rose from about $6.0 billion in 1988 to$81.5 billion in 1993 (Chart 11 and Table A12).23 Thesignificant rise in the net asset position of emergingmarket mutual funds in 1993 largely reflected a sharprun-up in share prices in developing countries. Theoverall price index compiled by the InternationalFinance Corporation (IFC) for developing countrystocks that foreign investors are allowed to purchase(referred to as the investable index) rose by 75 percentin 1993 (Charts 12 and 13). Share prices in some Asianmarkets more than doubled during that year. Adjustingfor these share-price increases, net purchases of devel-oping country equities by emerging market mutualfunds (including purchases of equities issued in inter-national capital markets) can be approximated.24

Mutual fund purchases of developing country equitiesare estimated to be $12.6 billion in 1993, comparedwith $8.4 billion in 1992 (Table A13). Issuance ofclosed end emerging market mutual funds accountedfor $2.0 billion of the total in 1993 (Table A14).

Despite a sharp drop in stock prices, the number ofemerging market mutual equity funds increased bymore than 90 in the first quarter of 1994, probablyreflecting the time lag involved in establishing thesefunds. The net asset value of all funds increased byabout $9 billion, despite the large decline in shareprices that occurred during that quarter. Data on open-end emerging market mutual funds domiciled outsidethe United States, however, suggest that the growth ofemerging markets funds slowed considerably in thesecond quarter of the year. Issuance of shares in closedend emerging markets mutual funds also declinedsharply from $4.2 billion in the first quarter of 1994 to$0.5 billion in the second quarter.

Mutual funds targeting Asian developing countriesaccounted for over 50 percent of total net assets inemerging market funds during 1993. Although globalmutual funds have recently expanded considerably, itis reported that their investments have also been con-centrated on Asian equities. Mutual funds designatedfor Latin American countries accounted for only 12

23Emerging market mutual funds' investment in developingcountry bonds has been limited. In 1993, net assets of fixed incomefunds amounted to only $8.5 billion. These figures are based oninformation provided by Emerging Market Funds Research, Inc.,and Lipper Analytical Services, Inc. Since funds that have investedless than 60 percent of their portfolio in emerging markets are notincluded, developing country assets purchased by mutual fundsmay be understated. On the other hand, to the extent that emergingmarket mutual funds usually hold part of their assets in cash ordeveloping country assets, the net asset value of these funds mayoverstate actual investment in emerging markets securities.

24Net equity purchases are estimated by deflating changes in thenet assets of each regional fund by the corresponding IFCinvestable share price index. The estimates are subject to a widemargin of error, especially because the country weights used for theIFC's regional and global indices may differ from the country com-position of the equities held by the funds.

Chart 11. Emerging Market Mutual Funds(In billions of U.S. dollars)

Sources: Emerging Market Funds Research, Inc; and LipperAnalytical Services, Inc.

'Net flows to developing countries are estimated by deflatingchanges in net assets of funds by IFC investable share price indices.

percent of the total net assets in emerging marketfunds.


Banks began to show a renewed interest in lendingto developing countries in 1993. In contrast to portfo-lio flows, however, the increase in medium- and long-term bank lending was modest. Medium- andlong-term bank commitments to developing countriesincreased by 7 percent to $21 billion during the year(Table A15).25 Banks in general, however, shortenedmaturities, raised spreads, and continued to use a vari-ety of risk-reducing techniques like asset securitiza-

25As the total for 1992 was affected by a large credit to SaudiArabia, the underlying growth was probably higher. The figureexcludes loans guaranteed by export credit agencies.

25



Chart 12. Share Price Indices for Selected Markets In Latin America(IFC Weekly Investable Price Indices, December 1988 = 100; in U.S. dollars)

Source: IFC Emerging Markets Data Base.1 Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela.

tion. The weighted average maturity of uninsured bankcredits to developing countries declined from 6.7 yearsin 1992 to 5.5 years in 1993 (Table 8) and the weightedaverage spread over the LIBOR rose from 86 basispoints in 1992 to 106 basis points in 1993. In the firsthalf of 1994, the weighted average maturity increasedto 6.8 years, and the spread narrowed to 99 basispoints. But actual spreads varied considerably amongdeveloping countries ranging from 60 to 70 basis

points for borrowers in Korea and Malaysia to 300basis points for borrowers in India and Mexico (TableA16). The U.S. dollar continued to be the most impor-tant currency of denomination, accounting for over 80percent of total syndicated loans to developing coun-tries in 1993.

The bulk of syndicated bank loans continued to bedirected toward Asia, although lending to Latin Amer-ica increased significantly in 1993. After having

26

III



Chart 13. Share Price Indices for Selected Markets In Asia(IFC Weekly Investable Price Indices, December 1988 = 100; in U.S. dollars)

Source: IFC Emerging Markets Data Base.1India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Taiwan Province of China, and Thailand.

declined in 1992, uninsured medium- and long-termbank loan commitments to Asian borrowers increasedto $15.7 billion in 1993. China continued to be thelargest Asian borrower, receiving loans totaling $3.6billion in 1993. It was followed by Thailand ($3.4 bil-lion), Hong Kong ($2.0 billion), Korea and Indonesia($1.9 billion each), and Malaysia ($1.6 billion). In thefirst half of 1994, loan commitments to Asia amountedto $9.2 billion, including $3.7 billion to Thailand.

Other noteworthy developments included the first sov-ereign loan to Indonesia since 1991 ($400 million) anda $1.2 billion loan to a petroleum company in Thai-land, the largest single borrowing in the Asian marketin the past five years.

In Latin America, uninsured medium- and long-termbank loan commitments increased from $0.9 billion in1992 to $2.2 billion in 1993. Venezuela increased bankborrowing to $0.8 billion in 1993, partly owing to

27



Table 8. Terms of Long-Term Bank Credit Commitments1

Average maturity (in years)OECD countriesEastern EuropeDeveloping countriesOther

Average spread (basis points)OECD countriesEastern EuropeDeveloping countriesOther

Memorandum items (in percent)Six-month Eurodollar

interbank rate (average)U.S. prime rate (average)

1989

6.25.88.37.38.8

5654496832

9.2710.92

1990

6.85.8

11.99.87.7

5451506666

8.3510.01

1991

5.45.1

7.63.5

7980

7571

6.088.46

1992

5.75.7

6.76.9

8586

8660

3.906.25

1993

5.54.4

5.55.3

8177

10683

3.416.00

Jan.-June1994

5.85.7

6.85.0

8279

9935

4.316.46

Sources: Organization for Economic Cooperation and Development (OECD), Financial Market Trends; and IMF, International FinancialStatistics (for Eurodollar and prime rates).

'The country classification and loan coverage are those used by the OECD.

loans raised by public sector oil exporters. Argentinareceived $0.4 billion in commitments for the first timein the 1990s, while Brazil, Chile, and Mexico main-tained access to bank credits on the order of $0.2-0.4billion. In the first half of 1994, however, bank loancommitments to Latin American borrowers declinedsharply to only $0.2 billion.

New commitments to developing countries inEurope remained subdued, amounting to $2.6 billion in1993 and $0.6 billion in the first half of 1994. Thosecommitments were confined to a handful of countries.Turkey continued to be the major borrower, receivingnew commitments of $1.9 billion in 1993; however,banks in 1994 became more cautious in light of thecountry's economic difficulties. Bank loan commit-ments to other European countries remained small,although several countries made their debut in theinternational credit markets, including the CzechRepublic and Slovenia. A widely publicized DM 1.4billion cofinancing facility for the Czech Republic'sSkoda Automodilova was canceled in September 1993,as its German parent revised its international invest-ment activity. New bank commitments to the MiddleEast increased to $1.3 billion in the first half of 1994,compared with $0.4 billion in 1993, while bank lend-ing to Africa remained almost nonexistent.

Other Issues

The strong growth in demand for developing coun-try securities in 1993 occurred even though theseassets were generally riskier than their counterparts indeveloped financial markets. Returns on equities insome developing countries have been significantlymore volatile than those in the United States. Similarly,

returns on selected developing country bonds havetended to be more volatile than returns on comparableU.S. Treasury bonds (Chart 14). Despite the higher riskinherent in developing country equities, investorssought the significantly higher returns offered by theseassets and increasingly perceived that these wouldoffer good opportunities for risk diversification.

The evidence shows that equity returns in manydeveloping countries have low or negative correlationswith equity returns in the United States and other devel-oped financial markets and that returns among manydeveloping country equities are relatively uncorre-lated.26 This pattern of correlations suggests that theexpected return of a portfolio can be increased for agiven level of risk by adding developing country equi-ties, even though these assets are riskier on averagethan equities in industrial country markets.27 Totalreturns on developing country bonds (both Brady bondsand new issues) have also been relatively uncorrelatedwith the total return on comparable U.S. Treasurybonds and among themselves (Tables A17 and A18).

These historical correlations change over time andare not a certain guide to future relationships betweenreturns on industrial and developing country securities.

26International Finance Corporation (1994b).27Consider an example of two very risky assets with the same

average return, but that always move in the opposite direction, thatis, their returns are perfectly negatively correlated. A portfoliodivided equally between these two assets would in principleinvolve no risk, as the movements in the two asset returns wouldalways offset each other. Thus, a portfolio composed of both assetswould yield the same expected return, while involving less riskthan a portfolio consisting entirely of either one of the assets. Thesepoints have been applied to portfolios with emerging marketsassets in a number of research papers, such as Campbell (1993).

28

III



Chart 14. Weekly Volatility of Total Returns onBonds and Equities for Selected Countries1

(In percent)

Sources: International Finance Corporation; and Reuters.'Simple volatility averages of representative bond issues and IFC

investable equity indices for Argentina, Brazil, Hungary, Korea, MexicoThailand, Turkey, and Venezuela.

The correlation between prices on Brady bonds andU.S. Treasury securities rose substantially in 1993 andthe first half of 1994. Returns on new developingcountry bond issues also became more highly corre-lated with U.S. bond returns and among each other inthe first half of 1994. Correlations among equityreturns appear to have been more stable, although forsome countries correlations rose significantly in thefirst half of 1994 (Table A19). This evidence suggeststhat the benefits to be gained by diversifying intodeveloping country securities may be weaker in peri-ods of significant market disturbances.

The volatility of returns on many developing coun-try securities has not tended to diminish over time, andfor many countries it increased in the first half of 1994.Strong movements in 1994 followed a period of rapidexpansion in the investor base, which raises questionsabout the relationship between market volatility andthe stability of that base. In the traditional analytical

view, growth in the number of investors should dimin-ish volatility over time as new investors add liquidityand more diversity of risk preferences. This impliesthat a market could be cleared with smaller movementsin prices.28 Such a view, however, is based on theassumption that differences in expectations, risk pref-erences, and liquidity needs among investors arepurely random, which means that new investors areessentially drawn from the same population as existinginvestors. If, instead, new investors differ systemati-cally from existing investors with respect to such con-siderations, an expansion of the investor base couldcontribute to higher volatility. For example, if newinvestors have much poorer information, their expecta-tions will be more variable, and their entry into themarket could add to price volatility.

The traditional framework also assumes that no indi-vidual investor is able to influence the price of assetstraded in the market. Recent analytical work, however,has focused on the implications of a less-competitivestructure in financial markets.29 In such a context, theinvestor base in a market can be assumed to consist ofsmall, risk-averse investors, arbitragers, and a fewlarge investors with inside information and an abilityto influence market prices. To maintain the value oftheir inside information, large investors might try toconceal their trades from other market participants,suggesting that the price of the asset will not necessar-ily reflect all available information. In this situation, anincrease in the number of large investors could at leastinitially add to volatility.30

The experiences of developing countries that haveopened their stock markets to foreign investors do notprovide a clear picture as to the relationship betweenmarket volatility and the investor base. The volatilityof equity returns in 17 developing countries was com-pared before and after the opening of their equity mar-kets to foreign investors; the results show that pricevolatility increased in eight cases (Table 9).31 Thevolatility of equity purchases was also examined for 14of these countries using U.S. balance of payments datathat provide country details on purchases by U.S. resi-dents.32 In all cases, these data show that both thevolume and volatility of equity purchases by U.S.investors increased substantially after these countriesopened their stock markets to foreign investors(Table 10).

28This view of the structure of a financial market is reviewed inGrossman and Stiglitz (1980).

29This approach is developed in Kyle (1985) and Campbell andKyle (1993).

30The ability of large traders to conceal their trades would beexpected to diminish over time as the number of large tradersincreased.

31'The indices of equity prices were drawn from the EmergingMarkets data base of the International Finance Corporation.

32U.S. Department of Treasury, Treasury Bulletin.

29



Table 9. Total Returns on Equity in Selected Emerging Market Countries:Before and After Opening to Foreign Investors1

(In percent at annual rate)

GreecePortugalTurkeyJordan

ArgentinaBrazilChileColombiaMexicoVenezuela

IndiaKoreaMalaysiaPakistanPhilippinesTaiwan Province of ChinaThailand

Mean

1.7107.152.410.6

63.913.933.532.124.0

6.3

19.220.812.112.376.952.920.6

Before

Volatility2

28.372.879.516.4

102.656.541.921.947.040.6

25.930.631.610.538.354.323.9

Mean

29.45.6

47.611.6

61.875.142.367.245.252.8

21.88.8

25.146.423.014.429.0

After

Volatility2

45.624.971.718.6

63.659.825.842.427.349.2

34.628.523.935.836.550.431.5

Source: IFC Emerging Markets data base.'Time period is 1976, quarter I to 1994, quarter II. The actual dates of opening to foreign investors are

as follows: Greece—December 1988; Portugal—December 1988; Turkey—August 1989; J o r d a n -December 1988; Argentina—October 1991; Brazil—May 1991; Chile—December 1988; Colombia-February 1991; Mexico—May 1989; Venezuela—January 1990; India—November 1992; Korea—January 1992; Malaysia—December 1988; Pakistan—February 1991; Philippines—October 1989;Taiwan Province of China—January 1991; Thailand—December 1988. For analytical purposes, and tocapture the fluctuations in the market caused by changes in investor expectations, the opening date wastaken to be four months prior to the actual date.

2Volatility is measured by the standard deviation of the percent change in the IFC total return indices.

Table 10. U.S. Net Purchases of Foreign Equity in Selected Countries:Before and After Opening to Foreign Investors(In millions of U.S. dollars)

GreecePortugal

ArgentinaBrazilChileMexicoVenezuela

IndiaKoreaMalaysiaPhilippinesTaiwan Province of ChinaThailand

Mean

-0.41.8

-1.250.7

2.624.4-0.5

0.82.7

13.13.8

-4.215.6

Before

Volatility1

4.53.2

12.271.9

9.926.5

3.0

2.116.316.314.412.613.7

Mean

41.358.6

1,037.81,165.9

114.32,283.5

1.5

149.7817.9275.8

94.327.729.1

After

Volatility1

20.044.8

496.6403.4

73.81,331.2

66.2

99.8502.9162.757.334.448.9

Source: U.S. Treasury, Treasury Bulletin.'Measured by the standard deviation.

30

III


E

IVInstitutional and Regulatory Framework forDeveloping Country Financing

Efforts by many developing countries to establishreliable domestic capital markets have played an

important role in attracting foreign capital. This sectionreviews recent measures adopted to improve the insti-tutional setting of those markets, to harmonize regula-tions, and to broaden investor bases at home andabroad. It also reviews recent changes in regulations increditor countries affecting the access of developingcountries to international capital markets.

Reform of Regulatory StructuresOver the last year, many emerging market countries

have taken steps to improve the quality of regulation intheir capital markets. Mexico introduced thoroughgo-ing reforms in 1993. New measures strengthened thesupervisory authority of the Comision Nacional deValores, improved the institutional structure of thestock market, and formalized automated trading.Uruguay is taking similar steps to regulate its capitalmarkets and create an independent securities regulator,which will take over functions currently exercised bythe central bank. In February 1994, Poland introduceda new securities law to govern the over-the-countersecurities market.

Russia has some 80 small stock exchanges dispersedthroughout the country, and most trading is conductedover the counter. In a recent survey, about half of thecountry's privatized enterprises envisaged raising cap-ital with new share issues in 1994 (and from July 1,1994, all shares are to be sold for cash rather thanvouchers). The country's recently formed Commissionon Securities and Stock Exchanges is now responsiblefor unifying all state agencies under a single entity anddeveloping regulations. The Commission is currentlydrafting legislation to create a single independent reg-ulatory body that will have jurisdiction over such mat-ters as disclosure requirements and clearing andsettlement systems.

Following an overhaul of China's regulatory frame-work in early 1993, a number of further revisions weremade over the last year. A permanent National Securi-ties Law, however, has yet to be ratified by the Peo-ple's Congress.33 In an effort to restrict the rising

"Early in 1993, the State Council Securities Policy Commissionassumed chief responsibility for regulation and surveillance forChina's securities markets. Temporary regulations were introducedgoverning the domestic market ("A" shares and bonds) and Hong

incidence of informal curb markets, the authoritieshave made it mandatory for all shares to be issued andtraded through state-run securities firms. Following theclosure of a large black market exchange, Chengdu, insouthwestern China's Sichuan province, is currentlyseeking to establish China's third stock exchange afterShenzhen and Shanghai. Efforts to increase the listingsand quality of "B" shares, and thereby to attract moreforeign investors, are being taken across theexchanges. The Shenzhen Stock Exchange, for exam-ple, recently introduced a number of measures aimedat improving disclosure, regulation, and accountingstandards applying to "B" shares.

Many countries over the last year have taken actionsto improve disclosure, listing, and accounting stan-dards, which make local capital markets more trans-parent and promote investor confidence. Introduced inDecember 1993, Venezuela's Comision Nacional deValores issued regulations to harmonize the financialstatements of companies listed on the country's stockexchanges and to clarify the responsibilities of auditorsin the preparation of financial reports. Peru's Bolsa deValores de Lima now requires that all listed companiesdisclose complete financial information for parentcompanies. In Malaysia, all listed companies now haveto establish audit committees, which review internalaccounting controls, supervise external financialreporting, and assure accurate financial disclosure.

Deficiencies in investor protection can seriouslyundermine investor confidence in emerging markets.34

As markets mature and develop in sophistication,countries have increasingly recognized the need, inparticular, to improve the enforcement of measures tolimit and oversee insider trading. From the beginningof 1994, for example, the Securities Board of India(SEBI) has introduced a series of legislative measuresspecifically aimed at tightening investor protection.These include regulating all transactions betweenclients and brokers and permitting the SEBI to inspect

Kong flotations ("H" shares). As yet, China's "B" shares for for-eign investors, listed on the Shanghai and Shenzhen exchanges, donot necessarily receive the same level of protection. For furtherinformation of developments of China's capital markets, see Gold-stein and others (1994).

34According to the IFC, of 22 emerging markets, only 6 haveinvestor protection laws of internationally acceptable quality. SeeInternational Finance Corporation (1994b).

31


IV INSTITUTIONAL AND REGULATORY FRAMEWORK

the books of debenture trusts. The SEBI has also beenempowered to prosecute companies whose prospec-tuses misrepresent the facts. Further plans includerequiring disclosure on a continuous basis and improv-ing transparency through screen-based trading andinternationally acceptable custodial and depository ser-vices. In Malaysia, the Kuala Lumpur Stock Exchangerecently introduced new minimum standards of con-duct for member brokerage firms to ensure equalopportunities and information for all clients. Peruintroduced a new insider trading law at the end of 1993that specifically forbade the use of preferential infor-mation. In Chile, insider trading was more clearlydefined and made punishable by law in January 1994.Plans by Chile's Superintendencia de Valores ySeguros to improve market surveillance, including theexpansion of electronic monitoring capacity, willstrengthen enforcement. Similar changes to Mexico'sNational Securities Law late in 1993 included muchstricter legislative criteria and penalties on the misuseof insider information. Finally, Poland's new securitieslaw, among other things, establishes strict penalties forsecurities offenses, including the falsifying of informa-tion in prospectuses.

Steps also continue to be taken to improve clearanceand settlement procedures in emerging markets as wellas to enhance overall trading systems. The efficiencyof such systems can help to promote rapid marketdevelopment, and several countries are moving towardfully electronic systems. Well-developed procedureshelp to ensure effective surveillance and regulatorycontrol, promote investor confidence, and facilitatecross-border securities transactions. Chile, for exam-ple, has recently established a centralized clearinghouse and depository, which was expected to be fullyoperational for equity-fixed income and money markettrading by the end of 1994. Venezuela is presently for-mulating plans for a similar depository. Currently, thecustodial function is decentralized, with asset titlesheld by the transfer agent, brokerage house, custodianbank, or final investors. Over the last year, Mexico'snational securities depository (S.D. INDEVAL) has beenauthorized to provide simultaneous payment and secu-rities delivery, as well as direct securities clearanceservices in ADR-related operations. These modifica-tions are specifically aimed at providing efficient trad-ing and liquidation, and overcoming differences insettlement periods across international markets. Hav-ing commenced electronic trading in 1991, Singa-pore's stock exchange is expected to have acompletely electronic settlement system this year. Aspart of Indonesia's plans to improve settlement proce-dures and strengthen enforcement capabilities,Jakarta's stock exchange intends to replace manualtrading with computerized trading in mid-1994. Dur-ing 1994, Hungary established a fully operationalclearing house and share depository, which hasreduced settlement time.

Expanding the Investor Base

Several countries have established new securitiesmarkets where none previously existed. At the begin-ning of 1994, Zambia formalized a securities regula-tory regime, with oversight power invested in aSecurities and Exchange Commission. This permittedthe opening of the country's first stock exchange,which commenced operations in Lusaka in February.Nepal also opened its first stock exchange in January1994, and 62 firms listed their shares. Nicaragua isexpected to open a securities exchange, which will bethe prime vehicle for the privatization of state assets.

In an effort to provide smaller companies with easieraccess to investable funds, a number of countries haverecently established second-tier markets characterizedby less stringent listing and disclosure requirements.This has the benefit of providing a phased movementto full public listing; it also assists in longer-termefforts to deepen markets. Recent changes to Mexico'sSecurities Law, for example, defined a second marketwith more lenient regulatory and disclosure require-ments. Similarly, Brazil released draft regulations inFebruary 1994 for a special over-the-counter market tohandle smaller companies. In the Czech Republic,while listed companies on the Prague Stock Exchangemust provide quarterly as well as annual financialreports and are required to promptly report substantiveevents affecting the value of their shares, unlisted buttradable companies face more lenient disclosurerequirements.

Many developing countries with advancing capitalmarkets have also expanded their efforts to widen theproduct range of assets available and to liberalizeinvestors' access. Colombia recently modified rules toallow small and medium-sized investors access tosecuritized bond issues. In tandem, new legislationpermitted both the state oil company and other publicsector entities to issue securitized debt related to infra-structure projects; securitization of real estate assetshas also been allowed. Under Venezuela's new bankinglaw, banks can now diversify into securities other thantraditional instruments like certificates of deposit.Thailand recently relaxed its restrictions on providentfunds to enable them to invest in unsecured instru-ments. Similarly, Chile has permitted pension funds toinvest in nonrated company shares, derivatives, andforeign securities; securitized paper has also beenexpanded to include home mortgages.

The creation of credit rating agencies can also helpto expand the investor base by standardizing andimproving the quality of available information. Severalcountries, therefore, allow foreign credit agencies toparticipate in joint ventures in their domestic marketsto help develop credit criteria that conform to interna-tional standards. Over the last year, a number of coun-tries have also introduced domestic rating agencies.Chile recently modified the role of the National Rat-

32


Regulatory Harmonization

ings Commission (NRC) to preclude it from making itsown evaluations but to extend its authority to overseethe work of private agencies. Peru recently set up a riskclassification commission to develop a credit ratingsystem in line with international standards. Under thecurrent stock market code and new legislation relatingto recently formed pension funds, the Peruvian author-ities have specified that all institutional investors mustoperate within such a system. In early 1994,Venezuela's CNV established regulations for newcredit risk agencies, the first of which opened inMarch. Colombia also opened its first risk-ratingagency (under foreign ownership) in late 1993.

Several countries have made it easier for foreignbrokers to operate in domestic markets, often in part-nership with domestic companies. Such measurespotentially have the virtues of facilitating the transferof valuable information technology and of providing auseful degree of comfort for new foreign investors. Inan effort to enhance market competition, the Securityand Exchange Commission in Taiwan Province ofChina reduced capital requirements for foreign broker-age firms and brought them into line with domestichouses.35 In April 1994, Thailand allowed foreign bro-kerage firms to purchase up to 49 percent of the sharesof Thai securities firms. In March 1994, Russia grantedthe first securities license to a foreign-owned invest-ment institution. Similarly, Poland is scheduled toallow foreign brokers to set up offices.

In the course of market development, a greater vari-ety of instruments become available to investors. Thisallows them to diversify their portfolio and hedge pos-sible risks more effectively. Derivative instruments,including futures, options, and warrants, greatlyenhance flexibility. To make effective use of suchinstruments, however, markets need adequate liquidityin underlying assets. Well-functioning regulatorystructures and clearing-and-settlement systems also areessential. Without adequate liquidity and regulatoryoversight, the premature introduction of such instru-ments can increase the risk of destabilizing fledglingdomestic securities markets and undermining the localbanking system. With such factors in mind, TaiwanProvince of China is currently in the final phase of athree-stage program to establish a domestic futuresmarket; operations are scheduled to begin in late 1994.Thailand recently commissioned a feasibility study onthe establishment of a similar market; the study isaimed particularly at specifying necessary regulatorystructures, capital adequacy requirements, and productranges. Hong Kong is expected to open an optionsmarket in late 1994 in line with continuing efforts toexpand the availability of financial derivatives. Like-wise, in October 1993, Mexico approved the trading of

inflation-linked options based on government securi-ties linked to the consumer price index. Finally, in Feb-ruary 1994, Venezuela issued regulations to governnew markets for options and futures.

Regulatory Harmonization

During the past few years, countries have beencooperating more intensively on capital market regula-tory issues. Such efforts tend to accelerate as domesticmarkets become more mature. Countries with rela-tively advanced markets commonly see greater inte-gration as a way of improving their global competitivepositions. Regulatory harmonization, however, canalso strengthen emerging markets.36

A recent study by the Development Committee ofthe International Organization of Securities Commis-sion surveyed securities regulatory commissions of 23developing countries and found that nearly all weremoving toward harmonizing procedures, regulatoryrequirements, and accounting standards.37 Many arealso removing restrictions on the sale of local securi-ties abroad and foreign securities in local markets. Onthe basis of this survey, three goals were set: (1) to pro-mote the provision of reliable information on changesand improvements in international regulatory proce-dures and accounting standards; (2) to stimulate theinterest of members in lifting restrictions on the place-ment of local securities in foreign markets and foreignsecurities in local markets; and (3) to organize regionalassociations that will help overcome difficulties com-monly faced in emerging markets.

Consistent with the latter goal, a number of coun-tries in Latin America passed legislation over the lastyear providing for the approval of cross-border listingswith nearby countries. The MERCOSUR group of coun-tries (Argentina, Brazil, Paraguay, and Uruguay), forexample, had passed legislation by early 1994 to allowthe trading of stocks and bonds across one another'smarkets. Colombia recently approved the listing of for-eign companies on its domestic market, provided cer-tain listing and disclosure requirements were met. Italso broadened the scope for domestic companies tomake public offerings abroad. Separately, Argentina isconsidering granting Mexican companies access to itslocal capital market. Mexico's new National SecuritiesMarket Law established an international trading sec-tion on the Mexican exchange and allowed a recentlycreated central depository institute (INDEVAL) to serveas custodian for foreign securities. This enables localbrokers to complete transactions in foreign securitiesfor their clients. In an analogous effort to promoteinterregional investment as well as to facilitate privati-

35Foreign brokers have been allowed to operate in TaiwanProvince of China since early 1993, but only one full branch has infact opened.

36For further information on the integration of capital markets indeveloping countries with those in the rest of the world, see Gold-stein and others (1993).

37International Organization of Securities Commissions (1993).

33


IV INSTITUTIONAL AND REGULATORY FRAMEWORK

zation, the stock exchanges of Bahrain, Jordan,Kuwait, Oman, Morocco, and Tunisia were expectedto be linked by September 1994; the Arab MonetaryFund was providing assistance. Similarly, the HongKong Stock Exchange announced its intention to focuson attracting equity placements by foreign countries(particularly China).

In order to promote information sharing and advancetoward market integration, a number of countries haverecently negotiated memoranda of understanding withone another. In Latin America, all countries havesigned memoranda with at least one other country,often a regional partner. In March 1994, for example,the Venezuelan and Colombian securities commissionssigned a memorandum of understanding to formalizecooperation on the exchange of information aboutchanges in regulatory and judicial issues, technicalassistance, and investor protection. One purpose of theagreement is to combat money laundering. In early1994, the London Stock Exchange and the ShanghaiSecurities Exchange also signed a memorandum ofunderstanding to promote technical cooperation andlay foundations for the joint listing and trading of secu-rities. In addition, Brazil's Bolsa de Mercadorias andFuturos and the New York Mercantile Exchangesigned a memorandum of understanding to share infor-mation on regulatory and technical issues.

Regulatory Changes in Creditor Countries

Securities Markets

In November 1993, the U.S. Securities and ExchangeCommission (SEC) adopted measures to simplify thelisting of foreign companies in U.S. markets. The newmeasures include recognition of international account-ing standards, easier registration procedures, and reduc-ing the required reporting history from three years to 12months. They also narrow the size requirement for apublic flotation from $300 million to $75 million. Overthe last year, the SEC has also assigned "recognizedcustodian status" to a number of emerging markets.This allows the foreign custodian to handle securitiesdeposited by American investors, which simplifiesclearance and settlement procedures. To a large extent,this recognition reflects improvements in the institu-tional environment in several developing countries,including Mexico and Thailand. In a similar vein, dur-ing the last year, the SEC accorded "ready market sta-tus" to Mexican Government debt instrumentsdenominated in pesos, including treasury certificates

(CETES), inflation-adjusted bonds (ADJUSTABONOS), andlong-term instruments (BONDES). This modificationallows U.S. securities firms to assign only a 7 percentcapital charge against the asset, in contrast to the 100percent charge required previously.

In analogous moves, the Australian Stock Exchangerecently proposed to establish a separate "Asian mar-ket" trading board in order to attract listings fromChina and other Asian countries. At present, around 14Chinese companies have expressed an interest alongwith a number of firms from Korea, Malaysia, and Sin-gapore. It is expected that by the end of 1994 up to 10companies could be listed. Asian companies intendingto list would have to comply with the same require-ments that apply to domestic firms, including abidingby international auditing standards and submittingsemiannual reports.

Provisioning Standards

Over the past several years, nearly all creditor coun-tries have modified their provisioning requirements forcommercial banks in light of the improving prospectsof many developing countries.38 Although this trend inpart reflects the stronger capitalization of creditorbanks, it is also based on the enhanced creditworthi-ness of certain indebted countries. Sound macroeco-nomic policies, the effective restructuring of existingcommercial bank debt, and the restoration of access tothe international capital markets, all underlay the trend.

Provisioning requirements now tend to be muchmore responsive to variations in creditworthiness. Forexample, changes introduced by Belgium and Switzer-land in 1993 replaced flat cover ratios of 60 percentand 65 percent, respectively, with a graded system thatassesses debt-servicing capacity and a range of macro-economic and political factors. In most countries, aver-age provisioning to cover exposure to developingcountries has declined. In Japan, however, where bankprovisioning is relatively low by international stan-dards, a reduction in developing country exposure hashelped to raise the average level of provisioning. Inaddition, an increase in provisioning by German banksover the last few years reflects proportionately higherexposure to Eastern Europe and the countries of theformer Soviet Union (Table A20).

38For further information on regulatory practices in creditorcountries as well as procedures by which developing countries may"graduate" from the need for creditor banks to make provisions,see Collyns and others (1992 and 1993).

34


VForeign Direct Investment

long with the rise in portfolio capital inflows,developing countries have experienced a surge in

foreign direct investment inflows during the 1990s.Like portfolio capital, these inflows have gone to a rel-atively small number of countries in Latin America andAsia. Their sharp rise is in part explained by factorsthat are likely to exert an influence over a limitedperiod of time, such as the privatization of governmentassets or the rebalancing of asset holdings in responseto economic reforms in developing countries.Although foreign direct investment is often perceivedas a relatively stable source of financing, a review ofexperience in the 1980s of a sample of highly indebteddeveloping countries suggests a more cautious view.When balance of payments difficulties are encoun-tered, the net impact of all transactions associated withforeign direct investment (including both current andcapital account transactions) may serve to exacerbateexternal imbalances.

Recent Trends in Direct Investment

Since the mid-1970s, when only modest flows wererecorded, net inflows of foreign direct investment todeveloping countries have risen rapidly.39 Neverthe-less, there have been substantial fluctuations aroundthis upward trend (Table A21 and Chart 15). For exam-ple, a surge in inflows has occurred since 1990. Overthe period 1991-93, cumulative net inflows amountedto $134 billion. In real terms, net foreign direct invest-ment flows to developing countries in the early 1990swere almost two and a half times their average level inthe 1980s.

The surge in foreign direct investment is notable notonly for its size, but also for its coincidence with thegrowth of other private capital flows. The rate ofincrease in net foreign direct investment in developingcountries since 1990 has been comparable with that ofportfolio flows. This simultaneous upturn in bothdirect and portfolio inflows contrasts sharply with pre-vious experiences of private capital surges to develop-ing countries. For example, bond financing wasdominant in the 1920s and 1930s, but defaults duringthe interwar period led in the first twenty years of the

postwar period to foreign direct investment replacingbonds as the primary form of capital inflow. A newsurge in portfolio flows, specifically in the form ofbank lending, began in the 1960s and peaked in theearly 1980s, but it was accompanied by a steep declinein foreign direct investment flows.40

Although many countries have experiencedincreases in direct investment inflows, as was the casewith previous surges, the latest upturn has been con-centrated in only a few countries. Three countries—Brazil, Indonesia, and Mexico—accounted for over 60percent of all foreign direct investment flows to devel-oping countries between 1971 and 1981.41 At the endof the 1980s, 63 percent of the total stock of foreigndirect investment in developing countries was held infive countries—Brazil, China, Egypt, Malaysia, andMexico. In contrast, the five developing countries withthe most external debt—Argentina, Brazil, India,Indonesia, and Mexico—accounted for only 33 percentof the total stock of debt.42 Between 1990 and 1993,the bulk of foreign direct investment flows went to tworegions: Latin America and Asia.

In Latin America, the total inflow doubled after1990. It reached $14 billion in 1992 before decliningmodestly to around $13 billion in 1993. Over thisperiod, average annual inflows were two to three timeshigher than in the 1980s. Two thirds of the total foreigndirect investment inflow to Latin America during theperiod went to Mexico and Argentina, with Chile,Venezuela, Brazil, and Colombia accounting for alarge share of the remainder. Developing countries inAsia received an estimated $66 billion in foreign directinvestment inflows in 1991-93, roughly half of thetotal flow to developing countries. China was by farthe largest recipient, accounting for more than 40 per-cent of the inflows to Asia. Malaysia and Singaporewere also major recipients of foreign direct investment,but at less than half of the level of flows to China. Inthe case of Malaysia, this represented a substantialpickup in inflows, while for Singapore it represented arelatively steady inflow of investment. Thailand andIndonesia also saw sizable foreign direct investmentinflows over the period. Inflows to the economies intransition in Central and Eastern Europe also rosesharply over the period 1991-93, amounting to

39Net foreign direct investment inflows are defined as foreigndirect investment capital inflows less capital outflows for directinvestments abroad by domestic residents.

40See Cardoso and Dornbusch (1988).41 Edwards (1990).42Claessens(1993).

35

A


V FOREIGN DIRECT INVESTMENT

Chart 15. Net Foreign Direct Investment toDeveloping Countries(In billions of U.S. dollars)

Source: World Economic Outlook data base.

approximately 10 percent of total foreign direct invest-ment inflows to developing countries. Finally, annualflows to Africa were largely unchanged in 1991-93,with almost all of the funds going to Nigeria and SouthAfrica.

The nature of and motivation for foreign directinvestment suggest that longer-term considerationsplay a role in explaining these flows. As a result, directinvestment might be expected to exhibit greater stabil-ity than other types of private capital flows.43 More-over, there are factors at work in the global economy,such as growing trade, greater market homogeneity,and improved communications technology, that shouldprovide long-term impetus for increased flows of for-eign direct investment.44 While all of this may be truein general, the recent experience of developing coun-tries may be explained by a number of factors that canbe expected to have an impact over a more limitedperiod of time.

Far-reaching economic reforms—including theremoval of legal restrictions on capital movements andon nonresident holdings of domestic assets—haveeliminated many of the barriers that formerly acted todeter foreign direct investment. At the same time, thealleviation of debt burdens has sharply lessened risksfor all would-be investors.45 Thus, the response of for-eign direct investment to these changes may to anextent represent a stock adjustment—implying a one-time rebalancing of the pattern of corporate asset hold-ings in response to policy changes in host countries.

43SeeLizondo(1991).44See Graham and Krugman (1993).45Dooley (1986).

Foreign direct investment related to privatization hasalso been an important factor in the recent upturn, par-ticularly in flows to Latin America. The potential forfurther foreign direct investment inflows from new pri-vatizations, however, will inevitably depend on thesize of the remaining stock of public sector assets thatcan be earmarked for sale. In general, the pace of thistype of inflow can be expected to slow as countriesnear the end of their privatization programs. There maybe further inflows related to the restructuring of newlyprivatized enterprises, but these are not likely to con-tinue on the scale of the initial inflows associated withthe sale of the enterprises.

Beyond such specific factors, general economicexpansion in the largest recipient countries also con-tributed to the recent surge in foreign direct invest-ment. Domestic growth not only provides foreignfirms with enhanced investment opportunities, it alsoprovides a pool of funds for reinvestment. In partbecause enterprises typically view such internally gen-erated resources as cheaper than funds raised in thecapital market, reinvested earnings now account for alarge proportion of total foreign direct investment cap-ital flows. Reinvested earnings, nonetheless, appear tomove procyclically; a slowdown in economic growthhas a dampening effect.

Behavior of Foreign Direct InvestmentTransactions in a Crisis

Foreign direct investment capital flows have beenviewed as potentially providing a more stable form offinancing for economic development, as well as a sub-stitute for reduced flows of commercial bank financ-ing.46 An important question remains, however, aboutthe behavior of such flows when a country encountersbalance of payments difficulties.47 It is widely arguedthat the longer-term motivations for foreign directinvestment, together with the substantial costs usuallyentailed in liquidating fixed assets, would result inthese flows being less responsive to adverse short-runmacroeconomic developments.

The stability of foreign direct investment capitalflows during crisis periods would, indeed, appear to belargely confirmed by a review of balance of paymentsdata reported to the IMF.48 Chart 16 shows the compo-

46See, for example, Goldsbrough (1986) and Cardoso and Dorn-busch (1988) for discussion of these issues.

47See Claessens, Dooley, and Warner (1993); the authors findthat broadly speaking foreign investment is no less volatile on ayear-on-year basis for a given country than other capital flows.

48These data conceptually include reinvested earnings of domes-tic affiliates of foreign firms. In practice, however, the recording ofreinvested earnings is incomplete in many developing countries.Foreign direct investment statistics are usually compiled by thecentral bank using actual cross-border flows and generally fail toadequately capture the reinvested portion of domestic affiliates'earnings.

36


Foreign Direct Investment Transactions

sition of total net private capital flows to six heavilyindebted countries that experienced external paymentsdifficulties during the 1980s.49 The data are expressedin real terms, deflating U.S. dollar values by an indexof the unit price of exports for industrial countries.While small in magnitude compared with other privateshort- and long-term flows, net foreign direct invest-ment capital flows were relatively stable throughoutthe debt crisis. Moreover, after rising substantially inthe late 1970s, those flows returned to previous levelsin the 1980s. Throughout the period, inflows of foreigndirect investment were recorded, while sizable out-flows of other forms of investment occurred in themid-1980s.

Focusing solely on recorded capital flows, however,may not fully capture the influence of foreign directinvestment on a country's external position. Whetherforeign direct investment contributes to or alleviates abalance of payments "shock" depends on the behaviorof the net flow resulting from both current and capitalaccount transactions between a domestic affiliate andits foreign parent. Conceptually, all earnings from affil-iated companies are assumed to accrue to their foreignparents and are included in current account transac-tions; the portion of earnings that is reinvested by theforeign parents in their affiliates is recorded as aninflow in the host country's capital account. Thus, thenet impact of foreign direct investment transactions ismeasured by associated capital inflows (comprisingboth reinvested earnings and "new" investment flows)less total earnings of foreign-owned companies. Thereis an a priori reason to expect that, in addition to thestability of inflows through the capital account, foreigndirect investment may also exert a stabilizing influenceduring a crisis through its effects on the currentaccount. Current account outflows in the form of repa-triated earnings may be expected to decline during acrisis, since the crisis is likely to reduce the total earn-ings of foreign-owned companies.

To capture fully the influence of foreign directinvestment transactions on a country's external posi-tion, it is important that the data accurately record totalearnings and total capital flows (i.e., reinvested earn-ings are fully accounted for). Given uncertainties aboutthe coverage of balance of payments data in manycountries, U.S. data on U.S. direct investment abroadhave been used to examine the overall balance of pay-ments effects of foreign direct investment transactionsfor the six heavily indebted countries discussedabove.50 While the U.S. data capture only the activityof U.S. firms, they have the advantage of including all

Chart 16. Composition of Net Private Capital Flows1

(In billions of 1985 U.S. dollars)

49Argentina, Brazil, Chile, Mexico, the Philippines, andVenezuela.

50U.S. Department of Commerce, Survey of Current Business,various issues. All data have been converted into 1985 U.S. dollarsusing an index of the unit value of industrial country exports. Earn-ings data and repatriated earnings data are expressed net of with-

Sources: IMF, International Financial Statistics; World EconomicOutlook; and IMF staff estimates.

1Argentina, Brazil, Chile, Mexico, the Philippines, and Venezuela.Excludes errors and omissions.

components of direct investment and, thus, may bettercapture short-run changes in the behavior of foreigninvestors. The data are also likely to be broadly repre-sentative, owing to the fact that U.S. companiesaccount for roughly half of the foreign investment inthe group of six heavily indebted developing countries.

For U.S. affiliates, total earnings fell when externalpayments difficulties of the host countries becamemore severe. These affiliates, however, responded tothe crisis by reducing reinvested earnings by more thanthe decline in total earnings. Repatriated earnings,thus, remained relatively stable, and actually increasedthroughout the period. In 1983, repatriated earningsexceeded income, generating negative reinvested earn-ings (i.e., a reduction in the assets of the U.S. affiliatesin these countries).

The sharp drop in reinvested earnings during the cri-sis was accompanied by a decline in flows of other for-eign direct investment capital to the six countries. Withthe more complete coverage of reinvested earnings inthe U.S. data, it appears that there was substantiallymore volatility in foreign direct investment inflowsduring the debt crisis than is suggested by the balanceof payments data for the six countries. Moreover, theforeign direct investment capital inflows shown in theU.S. data appear to have behaved in a manner gener-ally consistent with domestic investment as a whole inthe host countries. For the group of countries surveyed,

holding taxes and include interest received from loans. Beginningin 1981, earnings and reinvested earnings data exclude increases inthe dollar value of stocks either through exchange rate changes orthrough capital gains or losses.

37


V FOREIGN DIRECT INVESTMENT

domestic investment fell from 24 percent of GDP in1981 to 18 percent of GDP in 1985, reflecting pooroutput performance, low profitability, and an unstablefinancial environment. Net resource transfers back tothe parents increased sharply beginning in 1983 andcontinued until 1991. Over the period 1983-89, thesetransfers averaged around 7 percent per year ofthe total stock of U.S. direct investment in the sixcountries.

This analysis contrasts with the perception thatdirect investment flows may help stabilize the balanceof payments during a crisis. The persistence of largenet resource transfers associated with foreign directinvestment out of the six countries sampled here may

be related to the balance of payments difficulties thesecountries encountered. In common with all other exter-nal creditors, foreign investors faced the risk that theunallocated loss implied by these debt-service difficul-ties could fall on them, and they appear to have beenreluctant to commit to new investment until expectedlosses to creditors declined, as signaled by increases inthe secondary market value of debt.51 The recent surgein direct investment inflows into these countries haslargely corresponded with a return to creditworthinessand renewed access to foreign capital markets ingeneral.

51Dooley (1986).

38


Statistical Appendix



Table Al. Chronology of Bank Debt Restructurings and Bank Financial Packages, 1984-July 1994

1984Brazil: January2

Chile: January, June, and NovemberSierra Leone: JanuaryGuyana: January, July (deferment)Nicaragua: February (deferment)Peru: February3

Senegal: FebruaryNiger: MarchMexico: April (new financing only)Sudan: April (modification of 1981

agreement)Yugoslavia: MayJamaica: JuneZaire: June (deferment)Poland: July2

Madagascar: OctoberLiberia: December3

Zambia: December3

1985Cote d'lvoire: March2

Mexico: March, AugustCosta Rica: May2

Senegal: MayPhilippines: May2

Zaire: May (deferment)Guyana: July (deferment)Argentina: August2

Jamaica: SeptemberPanama: October2

Sudan: October (modification of 1981agreement)

Chile: November2

Colombia: December4

Ecuador: December2

Madagascar: December(modification of 1984 agreement)

Yugoslavia: December

1986Dominican Republic: FebruaryMorocco: FebruaryVenezuela: FebruarySouth Africa: March (standstill)Niger: AprilZaire: May (deferment)Brazil: July

AlbaniaCongoCote d'lvoire

Agreement classified by month of signature1

Uruguay: JulyPoland: September2

Romania: SeptemberCongo: October2,3

Cote d'lvoire: December

1987South Africa: MarchMexico: March (public sector debt)2,

August (private sector debt)Jamaica: MayMozambique: May3

Zaire: May (deferment)Chile: JuneHonduras: June3

Madagascar: June (modification of1985 agreement)

Argentina: August2

Morocco: SeptemberRomania: September (modification of

1986 agreement)Bolivia: November (amendment to

1981 agreement)Nigeria: November2' 3

Venezuela: NovemberGabon: December5

Philippines: December

1988Gambia, The: FebruaryChile: August (amendment to 1987

agreement)3

Uruguay: March (modification of 1986agreement)

Cote d'lvoire: April2' 3

Guinea: AprilTogo: MayPoland: JulyYugoslavia: September2

Malawi: OctoberBrazil: November2

1989Nigeria: AprilZaire: June (deferment)Poland: June (deferment)3

South Africa: OctoberHonduras: August3

Under negotiation

Nicaragua Russia

Niger: October3

Trinidad and Tobago: December

1990Philippines: February2

Mexico: February2

Madagascar: AprilBulgaria: April (standstill)3

Costa Rica: MayJamaica: JuneMorocco: SeptemberSenegal: SeptemberChile: December (amendments to

previous agreements)Venezuela: December2

1991Colombia: April5

Niger: AprilUruguay: January2

Brazil: May6

U.S.S.R., former: December(deferment)

Mozambique: DecemberNigeria: December

1992Algeria: MarchGabon: MayPhilippines: July2

Guyana: NovemberArgentina: December

1993Uganda: FebruaryBolivia: MarchRussia: July3

South Africa: SeptemberBrazil: November2

Jordan: December

1994Dominican Republic: FebruaryGabon: MayBulgaria: JuneZambia: JulyPoland: September2

Ecuador: October

Panama Sao Tome and PrincipePeru Sierra Leone

Tanzania

Sources: Restructuring agreements.Note: "Restructuring" covers rescheduling and also certain refinancing operations.Agreement either signed or reached in principle (if signature has not yet taken place); not all signed agreements have become effective.2The restructuring agreement includes new financing.3Agreed in principle or tentative agreement with banks' Steering Committees.4Refinancing agreement.5A separate club deal for new financing was arranged at the same time.6 Preliminary agreement on interest arrears.

41


STATISTICAL APPENDIX

Table A2. Amounts of Medium- and Long-Term Bank Debt Restructured1

(In millions of U.S. dollars; by year of agreement in principle)

1986 1987 1988 1989 1990 1991 1992 1993

First Half

1994

ArgentinaBoliviaBrazilBulgariaChile

CongoCosta RicaCote d'lvoireDominican

RepublicEcuador

GabonGambia, TheGuineaGuyanaHonduras

JamaicaJordanMadagascarMalawiMexico

MoroccoMozambiqueNicaraguaNigerNigeria

PanamaPeruPhilippinesPolandRomania

RussiaSenegalSierra LeoneSouth AfricaSudan

TogoTrinidad and

TobagoUgandaUruguayVenezuela

YugoslaviaZaireZambia

Total9

6,6715

217

691 2

(65)8

60,525

2532

(57)8

43/7002

2,174

524,250

— 9,0102

1,970 8,4112

800 —

(13,600)8 l l ,900 2

l ,7702

20,3382

29,5002 —4733,4 _— 61,0002

5,9022 —

391943

2482

2852

2,2112

(61)8

87,221

7,100

27,9803

1703'4

46,6003

l,8006

l ,5703

157

1322

352 —3,6713 48,2313

5,8242

332

21

3,150

— 8,666

— 1,1003,7

939

8573

7,1177

1507

1244,9

5,8119

781 1,3399 4,4733

(351)8 — — 12,6697

37

8,000

24,0007

— 5,000

492

4702

6,8952

80,155

(61)8

50,714

l,6083

19,7003

27,987

1534 '9 —

17,776 74,843 40,276

4147

20,350

Sources: Restructuring agreements; and IMF staff estimates.1including short-term debt converted into long-term debt and debt exchanges involving interest or principal reduction. Amounts represent

face value of old claims restructured; includes past due interest where applicable.2Multiyear rescheduling agreement (MYRA) entailing the restructuring of all eligible debt outstanding as of a certain date.3Financing packages involving debt and debt-service reduction.4Excludes past due interest.5Excluding $9.6 billion in deferments corresponding to maturities due in 1986.6Amendments to previous restructuring agreements.7Estimates of eligible debt.8Deferment agreement.9Face value of debt extinguished in buy-back.10Agreements in 1985 and 1987 modified debt-service profiles on debt rescheduled under the 1984 agreements; the amounts involved are

not shown because repayments made during 1985-87 have not been identified.

42


Tab

le A

3. T

erm

s an

d C

ondi

tion

s of

Ban

k D

ebt

Res

truc

turi

ngs

and

Fin

anci

al P

acka

ges,

198

9-Ju

ly 1

9941

Cou

ntry

, D

ate

of A

gree

men

t,an

d T

ype

of D

ebt

Res

ched

uled

B

asis

Am

ount

Pro

vide

d

(In

mill

ions

of

U.S

. do

llars

)

Gra

ceP

erio

d M

atur

ity

(In

year

s,

unle

ssot

herw

ise

note

d)

Inte

rest

Rat

e

(In

perc

ent

spre

adov

er

LIB

OR

/U.S

.pr

ime,

un

less

othe

rwis

e no

ted)

Arg

enti

na

Pre

lim

inar

y ag

reem

ent

on A

pril

7,

1992

;te

rm s

heet

Jun

e 23

, 19

92;

fina

l ag

reem

ent

Dec

embe

r 6,

199

2 an

d cl

osin

g of

agr

eem

ent

for

prin

cipa

l on

Apr

il 7

, 19

93

Col

late

rali

zed

debt

exc

hang

e

Bol

ivia

Agr

eem

ent

in p

rinc

iple

of

Apr

il 1

992;

ter

m s

heet

July

10,

199

2; f

inal

agr

eem

ent

Mar

ch

30,

1993

and

clos

ing

of a

gree

men

t on

May

19,

199

3

Wai

ver

to a

llow

deb

t bu

y-ba

ck a

nd^e

xcha

nges

Bra

zil

Pre

lim

inar

y ag

reem

ent

on J

uly

8, 1

992;

ter

msh

eet

Sep

tem

ber

22,

1992

; fi

nal

agre

emen

tN

ovem

ber

29,

1993

and

clo

sing

of

agre

emen

tA

pril

15,

199

4

New

mon

ey b

onds

Res

truc

turi

ng l

oan

Cap

ital

izat

ion

bond

Deb

t re

duct

ion

(see

Tab

le A

4)

Deb

t re

duct

ion

(see

Tab

le A

4)

Old

deb

t (e

qual

to

5.5

tim

es t

he n

ewm

oney

pro

vide

d) t

o be

exc

hang

ed a

t pa

rfo

r ne

w n

onco

llat

eral

ized

bon

ds.

Dif

fere

nce

betw

een

inte

rest

rat

e in

yea

rs1-

6 an

d L

IBO

R p

lus

% t

o be

cap

ital

ized

.

Dif

fere

nce

betw

een

inte

rest

rat

e in

yea

rs1-

6 an

d 8

perc

ent

to b

e ca

pita

lize

d.B

ack-

load

ed a

mor

tiza

tion

sch

edul

e.

10 10

15 20 20

Yea

rs 1

-2:

4 pe

rcen

tY

ears

3-4

: 4.

5 pe

rcen

tY

ears

5-6

: 5

perc

ent

Yea

rs 7

-20:

%

Yea

rs 1

-2:

4 pe

rcen

tY

ears

3-4

: 4.

5 pe

rcen

tY

ears

5-6

: 5

perc

ent

Yea

rs 7

-20:

8 p

erce

nt

Col

late

rali

zed

debt

exc

hang

es

Deb

t re

duct

ion

(see

Tab

le A

4)

7/8

7

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

3 (c

ontin

ued)

Cou

ntry

, D

ate

of A

gree

men

t,an

d T

ype

of D

ebt

Res

ched

uled

B

asis

Am

ount

Pro

vide

d

(In

mill

ions

of

U.S

. do

llars

)

Gra

ceP

erio

d M

atur

ity

(In

year

s,

unle

ssot

herw

ise

note

d)

Inte

rest

Rat

e

(In

perc

ent

spre

adov

er

LIB

OR

/U.S

.pr

ime,

un

less

othe

rwis

e no

ted)

Bu

lgar

iaA

gree

men

t in

pri

ncip

le o

n N

ovem

ber

24,

1993

;te

rm s

heet

Mar

ch 1

1, 1

994;

fin

al a

gree

men

ton

Jun

e 29

, 19

94

Col

late

rali

zed

debt

exc

hang

e

Cos

ta R

ica

Pre

lim

inar

y ag

reem

ent

on N

ovem

ber

16,

1989

;fi

nal

agre

emen

t on

May

21,

199

0

Dom

inic

an R

epu

bli

cP

reli

min

ary

agre

emen

t on

May

3,

1993

;te

rm s

heet

Aug

ust

6, 1

993;

fin

al a

gree

men

ton

Feb

ruar

y 14

, 19

94

Col

late

rali

zed

debt

exc

hang

e

Ecu

ador

Agr

eem

ent

in p

rinc

iple

on

May

2,

1994

;te

rm s

heet

Jun

e 14

, 19

94

Col

late

rali

zed

debt

exc

hang

e

Gab

onA

gree

men

t in

pri

ncip

le o

n D

ecem

ber

11, 1

991;

fina

l ag

reem

ent

on M

ay 1

2, 1

992

Res

ched

ulin

g of

pri

ncip

al d

ueJa

nuar

y 1,

198

9-D

ecem

ber

31,

1992

Gu

yan

aA

gree

men

t on

ter

m s

heet

on

Aug

ust

27,

1992

;fi

nal

agre

emen

t on

Nov

embe

r 24

, 19

92

Deb

t re

duct

ion

(see

Tab

le A

4)

Deb

t re

duct

ion

(see

Tab

le A

4)

Deb

t re

duct

ion

(Tab

le A

4)

Deb

t re

duct

ion

(see

Tab

le A

4)

100

perc

ent

of p

rinc

ipal

Deb

t re

duct

ion

(see

Tab

le A

4)

157

133

7/8

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Hon

du

ras

Agr

eem

ents

of

Aug

ust

17,1

989

Bil

ater

al c

once

ssio

nal

resc

hedu

ling

of

debt

to L

loyd

s B

ank

Pri

ncip

al o

utst

andi

ng a

t en

d of

Oct

ober

19

89

Inte

rest

arr

ears

at

end

of O

ctob

er

1989

Bil

ater

al c

once

ssio

nal

resc

hedu

ling

of

debt

to B

ank

of A

mer

ica

Pri

ncip

al o

utst

andi

ngIn

tere

st a

rrea

rs a

s of

end

of

Oct

ober

19

89

Jam

aica

Agr

eem

ent

on J

une

26,

1990

Ref

inan

cing

of

debt

pre

viou

sly

resc

hedu

led

in 1

987

Tra

nche

AT

ranc

he B

Jord

anA

gree

men

t in

pri

ncip

le o

n N

ovem

ber

20,

1989

Res

truc

turi

ng o

f m

ediu

m-

term

loa

nsm

atur

ing

betw

een

Janu

ary

1, 1

989—

June

30

, 19

91N

ew m

ediu

m-t

erm

mon

ey f

acil

ity

Pre

lim

inar

y ag

reem

ent

on J

une

30,

1993

;te

rm s

heet

Aug

ust

20,

1993

; fin

al a

gree

men

tD

ecem

ber

10,

1993

and

clo

sing

of

agre

emen

tD

ecem

ber

23,

1993

100

perc

ent

100

perc

ent

100

perc

ent

100

perc

ent

462

222'4

472

17

4

7 7 10

20 20 20 20

6.25

per

cent

fixe

d ra

te3

6.25

per

cent

fixe

d ra

te3

6.5

perc

ent

4 pe

rcen

t fi

xed

rate

100

perc

ent

of p

rinc

ipal

100

perc

ent

of p

rinc

ipal

144

188

100

perc

ent

of p

rinc

ipal

New

mon

ey58

0 50

10 1

/214

1/2

11 1

/23

Col

late

rali

zed

debt

exc

hang

e

Mad

agas

car

Agr

eem

ent

in p

rinc

iple

in

Oct

ober

198

9 an

dsi

gned

on

Apr

il 1

0, 1

990

Res

ched

ulin

g

Deb

t re

duct

ion

(see

Tab

le A

4)

100

perc

ent

of p

rinc

ipal

fal

ling

due

on D

ecem

ber

15,

1989

and

50

perc

ent

of p

rinc

ipal

fal

ling

due

in 1

990-

93

21.1

2/3 8 5 3

13/16 49% 49% 49%

97/8

-131

/2

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

3 (c

ontin

ued)

Cou

ntry

, D

ate

of A

gree

men

t,an

d T

ype

of D

ebt

Res

ched

uled

B

asis

Am

ount

Pro

vide

d

(In

mill

ions

of

U.S

. do

llars

)

Gra

ceP

erio

d M

atur

ity

(In

year

s,

unle

ssot

herw

ise

note

d)

Inte

rest

Rat

e

(In

perc

ent

spre

adov

er

LIB

OR

/U.S

.pr

ime,

un

less

othe

rwis

e no

ted)

Mex

ico

Agr

eem

ent

on F

ebru

ary

4, 1

990

New

mon

ey f

acili

tyC

olla

tera

lize

d de

bt e

xcha

nges

Res

truc

turi

ng o

f m

atur

itie

s of

eli

gibl

e de

btno

t su

bjec

t to

deb

t an

d de

bt-s

ervi

cere

duct

ion

Mor

occo

Agr

eem

ent

in p

rinc

iple

of

Apr

il 1

990;

fina

l ag

reem

ent

of S

epte

mbe

r 19

90R

estr

uctu

ring

of

the

enti

re d

ebt

outs

tand

ing

at e

nd o

f 19

89D

ebt

buy-

back

s au

thor

ized

Moz

amb

iqu

eA

gree

men

t in

pri

ncip

le o

n N

ovem

ber

1, 1

991;

oper

atio

n co

mpl

eted

Dec

embe

r 27

, 19

91W

aive

rs t

o al

low

deb

t bu

y-ba

ck

Nig

er Agr

eem

ent

in p

rinc

iple

on

Janu

ary

14, 1

991;

oper

atio

n co

mpl

eted

Mar

ch 8

, 19

91W

aive

rs t

o al

low

deb

t bu

y-ba

ck

Nig

eria

Agr

eem

ent

in p

rinc

iple

of

Sep

tem

ber

1988

;fi

nal

agre

emen

t of

Apr

il 19

89R

estr

uctu

ring

of

debt

out

stan

ding

at

end

of 1

987

Not

pre

viou

sly

resc

hedu

led

med

ium

-ter

mde

bt

New

mon

eyD

ebt

redu

ctio

n (s

ee T

able

A4)

100

perc

ent

of p

rinc

ipal

l,09

05

6,40

0

15 15

100

perc

ent

of p

re-c

utof

f de

bt

3,15

0 7-

10

15-2

0

Deb

t re

duct

ion

(see

Tab

le A

4)

Deb

t re

duct

ion

(see

Tab

le A

4)

100

perc

ent

of p

rinc

ipal

1,

256

20

7 7

3

13-16

21.1

21.1 7/8

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Nig

eria

(c

ontin

ued)

Deb

t co

vere

d by

the

Nov

embe

r 19

87re

sche

duli

ng a

gree

men

tD

ebt

(let

ters

of

cred

it)

cove

red

by t

heN

ovem

ber

1987

ref

inan

cing

agr

eem

ent

Agr

eem

ent

in p

rinc

iple

of

Mar

ch 1

991;

fina

l ag

reem

ent

Dec

embe

r 20

, 19

91 a

ndcl

osin

g of

agr

eem

ent

on J

anua

ry 2

1,19

92N

ew m

oney

bon

d ex

chan

ge

Buy

-bac

k an

d de

bt e

xcha

nge

Ph

ilip

pin

esA

gree

men

t in

pri

ncip

le o

f O

ctob

er 1

989;

fina

l ag

reem

ent

of F

ebru

ary

1990

:N

ew m

oney

bon

ds o

r lo

ans7

Res

ched

ulin

g of

mat

urit

ies

falli

ng d

uein

199

0-93

Cha

nge

in s

prea

d on

pre

viou

sly

rest

ruct

ured

deb

tW

aive

rs t

o al

low

deb

t bu

y-ba

cks

and

exch

ange

s

Pre

lim

inar

y ag

reem

ent

of A

ugus

t 19

91; t

erm

shee

t F

ebru

ary

1992

, fin

al a

gree

men

tJu

ly 2

4, 1

992

and

clos

ing

of a

gree

men

ton

Dec

embe

r 1,

199

2N

ew m

oney

bon

ds

Col

late

rali

zed

debt

exc

hang

es

Pol

and

Agr

eem

ent

in p

rinc

iple

of

June

16,

198

9D

efer

men

t of

am

orti

zati

on p

aym

ents

fal

ling

due

betw

een

May

198

9 an

d D

ecem

ber

1990

9

100

perc

ent

of p

rinc

ipal

Arr

ears

on

inte

rest

, fe

es,

and

com

mis

sion

s on

let

ters

of

cred

it10

0 pe

rcen

t

1,63

52,

448

4906

3 3 —

20 15 3 N

on-i

nter

est-

bear

ing

Ban

ks w

ould

pro

vide

new

mon

ey i

nan

am

ount

equ

ival

ent

to 2

0 pe

rcen

tof

deb

ts e

xcha

nged

for

non

coll

ater

aliz

edne

w b

onds

.D

ebt

redu

ctio

n (s

ee T

able

A4)

New

mon

ey

100

perc

ent

of p

rinc

ipal

Deb

t re

duct

ion

(see

Tab

le A

4)

15

710

781

Unc

hang

ed

15 15

Old

deb

t (e

qual

to

four

tim

es t

he

1398

new

mon

ey p

rovi

ded)

to

be e

xcha

nged

at p

ar b

ond

for

new

non

coll

ater

aliz

ed b

onds

.D

ebt

redu

ctio

n (s

ee T

able

A4)

100

perc

ent

206

17

Unc

hang

ed

7 8 8 13-16

13-16

13-1617/8 13/16

513

/16

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

3 (c

ontin

ued)

Cou

ntry

, D

ate

of A

gree

men

t,an

d T

ype

of D

ebt

Res

ched

uled

B

asis

Am

ount

Pro

vide

dG

race

Per

iod

Mat

urit

y In

tere

st R

ate

Pol

and

(con

tinue

d)A

gree

men

t in

pri

ncip

le o

f O

ctob

er 1

989

Res

ched

ulin

g of

int

eres

t fa

lling

due

in t

he f

ourt

h qu

arte

r of

198

910

Agr

eem

ent

in p

rinc

iple

on

Mar

ch

10,

1994

;te

rm s

heet

May

23

, 19

94N

ew m

oney

bon

ds

Col

late

rali

zed

debt

exc

hang

e

Ru

ssia

Agr

eem

ent

in p

rinc

iple

of

July

30,

199

3R

esch

edul

ing

of e

xist

ing

stoc

k of

deb

t an

din

tere

st a

rrea

rs

Sen

egal

Agr

eem

ent

of S

epte

mbe

r 19

90

Sou

th A

fric

aD

ebt

arra

ngem

ent

of S

epte

mbe

r 27

, 19

93R

esch

edul

ing

of s

hort

and

med

ium

-ter

m d

ebt

subj

ect

to S

epte

mbe

r 19

85 s

tand

stil

lan

d fa

lling

due

at

expi

rati

onof

thi

rd i

nter

im a

rran

gem

ent

Tri

nida

d an

d T

obag

oA

gree

men

t in

pri

ncip

le o

f N

ovem

ber

1988

;fi

nal

agre

emen

t D

ecem

ber

1989

Med

ium

- an

d lo

ng-t

erm

mat

urit

ies

falli

ng d

ueS

epte

mbe

r 1,

198

8-A

ugus

t 31

, 19

92

Uga

nd

aF

inal

agr

eem

ent:

Feb

ruar

y 26

, 19

93

85 p

erce

nt

(In

mill

ions

of

U.S

. do

llars

)

145

(In

year

s,

unle

ssot

herw

ise

note

d)

(In

perc

ent

spre

adov

er

LIB

OR

/U.S

.pr

ime,

un

less

othe

rwis

e no

ted)

New

mon

ey b

onds

to

be p

rovi

ded

corr

espo

ndin

g to

35

perc

ent

ofde

bt a

lloc

ated

to

debt

con

vers

ion

bond

s (s

ee T

able

A

4)D

ebt

redu

ctio

n (s

ee T

able

A4)

100

perc

ent

of p

rinc

ipal

100

perc

ent

of i

nter

est

arre

ars

24,0

00

3,00

0

10 5 5

15 15 10af

ter

cash

pay

men

ts o

f $5

00 m

illi

on

100

perc

ent

of p

rinc

ipal

37

5,00

0 1

1/8

100

perc

ent

of p

rinc

ipal

Deb

t re

duct

ion

(Tab

le A

4)

446

12 1

/2

/2 41/82

897/813/1

6

13/16

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Uru

guay

Agr

eem

ent

in p

rinc

iple

of

Nov

embe

r 19

90;

fina

l ag

reem

ent

Janu

ary

1991

New

Mon

ey B

ond

Exc

hang

e

Buy

-bac

k an

d de

bt e

xcha

nge

20 p

erce

nt i

ncre

ase

in e

xpos

ure

via

purc

hase

of

new

bon

ds w

ould

enti

tle

bank

s to

exc

hang

e at

par

old

debt

for

non

coll

ater

aliz

ed"d

ebt-

conv

ersi

on n

otes

."D

ebt

redu

ctio

n (s

ee T

able

A4)

89

15

1.0

Ven

ezue

laA

gree

men

t in

pri

ncip

le o

n M

arch

20,

199

0;fi

nal

term

she

et o

f Ju

ne

25,

1990

;fi

nal

agre

emen

t on

Dec

embe

r 5,

199

0N

ew m

oney

bon

d ex

chan

ge

Col

late

rali

zed

debt

exc

hang

es

Old

deb

t (e

qual

to

five

tim

esth

e ne

w m

oney

pro

vide

d) t

o be

exch

ange

d at

par

for

new

,no

ncol

late

rali

zed

bond

s.D

ebt

redu

ctio

n (s

ee T

able

A4)

1,19

7 15

1

and

Zam

bia

Agr

eem

ent

in p

rinc

iple

, Ju

ly 1

, 19

94

Deb

t re

duct

ion

(see

Tab

le A

4)

Sou

rces

: R

estr

uctu

ring

agr

eem

ents

; an

d IM

F st

aff

esti

mat

es.

'Arr

ange

men

ts a

ppro

ved

in p

rinc

iple

bef

ore

Janu

ary

1, 1

989

are

repo

rted

in

prev

ious

bac

kgro

und

pape

rs.

2Vol

unta

ry a

mor

tiza

tion

pay

men

ts m

ade

duri

ng t

he g

race

per

iod

wou

ld b

e m

atch

ed o

n a

1:1

basi

s by

deb

t fo

rgiv

enes

s (e

quiv

alen

t to

a b

uy-b

ack

opti

on a

t 50

ce

nts

on t

he d

olla

r).

inte

rest

rat

e w

ould

be

incr

ease

d by

a m

axim

um o

f 3

perc

enta

ge p

oint

s if

GD

P gr

owth

exc

eeds

a t

hres

hold

rat

e.4S

even

ty p

erce

nt o

f th

ese

arre

ars

wer

e fo

rgiv

en i

n 19

90 u

pon

dow

n-pa

ymen

t eq

ual

to 5

per

cent

of

thes

e ar

rear

s. B

egin

ning

at

the

end

of 1

990

and

prov

ided

tha

t H

ondu

ras

rem

aine

dcu

rren

t on

int

eres

t du

e on

all

resc

hedu

led

amou

nts

unde

r th

e ag

reem

ent,

the

cred

itor

ban

k w

ould

fur

ther

for

give

int

eres

t ar

rear

s by

a y

earl

y am

ount

equ

al t

o 5

perc

ent

of t

he a

rrea

rsou

tsta

ndin

g at

the

end

of

Oct

ober

198

9.5N

ew m

oney

opt

ions

inc

lude

med

ium

-ter

m l

oan,

new

mon

ey b

onds

, on

-len

ding

fac

ility

, an

d m

ediu

m-t

erm

tra

de f

acili

ty.

As

of t

he e

nd o

f M

arch

199

2, $

952

mil

lion

had

bee

n di

sbur

sed.

incl

ud

es $

112

mil

lion

of

prev

ious

ly c

apit

aliz

ed i

nter

est

arre

ars

on l

ette

rs o

f cr

edit

.7A

llow

ance

for

re-

lend

ing

for

up t

o 36

6 da

ys o

f up

to

20

perc

ent

of t

he n

ew m

oney

on

a re

volv

ing

basi

s, o

f w

hich

one

hal

f w

ould

be

avai

labl

e in

any

one

cal

enda

r ye

ar a

nd o

ne h

alf

wou

ld b

e av

aila

ble

to t

he p

riva

te s

ecto

r.8C

omm

itte

d to

the

new

mon

ey o

ptio

n at

the

end

of

June

199

2, w

ith

95 p

erce

nt o

f el

igib

le d

ebt

tend

ered

und

er t

he p

acka

ge.

9Pay

men

t w

as t

o be

def

erre

d un

til

Dec

embe

r 30

, 19

91.

Alt

erna

tive

ly,

bank

s w

ould

rec

eive

pay

men

ts a

ccor

ding

to

the

orig

inal

sch

edul

e in

ret

urn

for

an e

qual

inc

reas

e in

the

sho

rt-t

erm

revo

lvin

g tr

ade

faci

lity.

10P

aym

ent

was

def

erre

d un

til

the

seco

nd q

uart

er o

f 19

90.

nT

he

inte

rest

rat

e of

LIB

OR

plu

s 7/8

appl

ies

to t

he n

ew m

oney

bon

ds i

ssue

d by

the

cen

tral

ban

k (a

s op

pose

d to

bon

ds i

ssue

d by

Ven

ezue

la).

7 77/81

1

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

4. D

ebt

and

Deb

t-Se

rvic

e R

educ

tion

in

Com

mer

cial

Ban

k A

gree

men

ts,

1987

-Jul

y 19

94(B

y ye

ar o

f agr

eem

ent

in p

rinc

iple

)

Fac

e V

alue

of

Deb

tto

Com

mer

cial

Ban

ks

Ret

ired

Is

sued

R

esou

rces

Use

d T

erm

sE

nhan

cem

ents

for

New

Ins

trum

ents

Sp

ecia

l F

eatu

res

Arg

enti

na

(198

7)N

onco

llat

eral

ized

deb

t ex

chan

gew

ith

inte

rest

red

ucti

on

Arg

enti

na

(199

2)P

rinc

ipal

red

ucti

on

(In

mill

ions

of

U.S

. do

llars

)

15

15

6,66

3 4,

331

Inte

rest

red

ucti

on

12,7

34

12,7

34

Bol

ivia

(19

87)

Cas

h bu

y-ba

ck

Col

late

rali

zed

debt

exc

hang

ew

ith

prin

cipa

l re

duct

ion

Deb

t fo

rgiv

enes

s

253

204 16

3,05

9' (

incl

udin

gre

sour

ces

from

IMF,

Wor

ld B

ank,

Inte

r-A

mer

ican

Dev

elop

men

tB

ank,

Exi

mba

nkJa

pan,

and

Arg

enti

na's

ow

nre

sour

ces)

28 (

bila

tera

l do

na-

tion

s)

7 (b

ilat

eral

don

a-ti

ons)

Old

cla

ims

exch

ange

d at

par

for

new

exi

t bo

nds

wit

h a

25-y

ear

mat

urit

y (1

2 ye

ars'

gra

ce)

and

4pe

rcen

t fi

xed

rate

.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds,

wit

h a

30-y

ear

bull

etm

atur

ity

and

inte

rest

at

LIB

OR

plus

13/1

6, at

pre

nego

tiat

edex

chan

ge r

atio

of

1:0.

65.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

a 30

-yea

r bu

llet

mat

urit

y an

d in

tere

st i

ncre

asin

ggr

adua

lly

from

4 p

erce

nt i

n ye

aron

e, t

o 6

perc

ent

in y

ear

seve

n,an

d re

mai

ning

at

that

lev

el u

ntil

mat

urit

y.

At

prea

nnou

nced

pri

ce o

f 11

cent

s on

the

dol

lar.

Old

cla

ims

exch

ange

d fo

r ne

wze

ro-c

oupo

n 25

-yea

r bo

nd c

ar-

ryin

g 9.

25 p

erce

nt y

ield

at

apr

eann

ounc

ed e

xcha

nge

rati

o of

1:0.

11.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st g

uara

ntee

base

d on

8 p

erce

ntra

te.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st g

uara

ntee

base

d on

6 p

erce

ntra

te.

Pri

ncip

al a

nd i

nter

-es

t fu

lly c

olla

tera

l-iz

ed.

New

bon

ds e

xclu

ded

from

fu

ture

new

mon

ey b

ase.

Par

t of

pas

t du

e in

tere

st s

ettl

ed a

tcl

osin

g da

te (

thro

ugh

cash

pay

-m

ents

of

$700

mil

lion

). T

he b

al-

ance

ref

inan

ced

(3 y

ears

' gra

ce)

bear

ing

inte

rest

of

LIB

OR

plu

s%

an

d al

l se

mia

nnua

l am

orti

za-

tion

pay

men

ts r

isin

g fr

om

1 pe

r-ce

nt o

f th

e or

igin

al f

ace

valu

e in

paym

ents

1-7

, 5

perc

ent

in p

ay-

men

t 8,

and

8 p

erce

nt i

npa

ymen

ts 9

-19.

Inte

rest

due

red

uced

to

resp

ecti

vem

onth

ly L

IBO

R t

hrou

gh e

nd o

f19

91,

and

to 4

per

cent

the

reaf

ter.

Bon

ds e

ligi

ble

for

debt

conv

ersi

on.

Pas

t du

e in

tere

st c

ance

led

unde

ral

l op

tion

s. N

ew b

onds

eli

gibl

efo

r de

bt c

onve

rsio

n.

Incl

udes

$0.

6 m

illi

on o

f de

bt-f

or-

natu

re s

wap

.

22

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Bol

ivia

(19

92)

Cas

h bu

y-ba

ck

78

Inte

rest

red

ucti

on

33

33

Pri

ncip

al r

educ

tion

60

10

Bra

zil

(198

8)N

onco

llat

eral

ized

deb

t ex

chan

ge

1,10

0 1,

100

wit

h in

tere

st r

educ

tion

27 (

incl

udin

gre

sour

ces

from

IDA

deb

t-re

duct

ion

faci

l-ity

and

gra

nts

from

the

Uni

ted

Sta

tes,

Sw

eden

,Sw

itze

rlan

d,an

d th

e N

ethe

r-la

nds)

At

prea

nnou

nced

pri

ce o

f 16

cent

s on

the

dol

lar.

Old

cla

ims

exch

ange

d at

par

for

non-

inte

rest

-bea

ring

new

bon

dsw

ith

a 30

-yea

r bu

llet

mat

urit

y.

Old

cla

ims

exch

ange

d fo

r ne

wsh

ort-

term

bon

ds a

t pr

eneg

oti-

ated

exc

hang

e ra

tio

of 1

:0.1

6

Old

cla

ims

exch

ange

d at

par

for

new

exi

t bo

nds

wit

h a

25-y

ear

mat

urit

y (1

0 ye

ars'

gra

ce)

and

6pe

rcen

t fi

xed

rate

.

Pri

ncip

al f

ully

coll

ater

aliz

ed.

Pas

t du

e in

tere

st c

ance

led

unde

ral

l op

tion

s.

Val

ue r

ecov

ery

clau

se b

ased

on

the

wor

ld p

rice

of

tin.

Upo

nm

atur

ity,

bon

ds e

xcha

nged

int

oas

sets

den

omin

ated

in

dom

esti

ccu

rren

cy a

t pr

eneg

otia

ted

rati

o of

1:1.

5 fo

r ap

prov

ed i

nves

tmen

t in

spec

ial

proj

ects

.

New

bon

ds e

xclu

ded

from

fu

ture

new

mon

ey b

ase.

Eli

gibl

e fo

rde

bt-e

quit

y co

nver

sion

pro

gram

.

Bra

zil

(199

2)P

rinc

ipal

red

ucti

on

14,2

10

9,23

7

Inte

rest

red

ucti

on

12,9

92

12,9

92

Tem

pora

ry i

nter

est

redu

ctio

n 2,

030

2,03

0

2,80

0 (o

wn

reso

urce

s an

dab

out

400

of n

ewm

oney

). A

ddi-

tion

al 9

00 a

re t

obe

del

iver

ed i

n th

ene

xt t

wo

year

s.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds

with

a 3

0-ye

ar b

ulle

tm

atur

ity

and

inte

rest

at

LIB

OR

plus

13/1

6 at

pren

egot

iate

dex

chan

ge r

atio

of

1:0.

65.

Old

cla

im e

xcha

nged

at

par

for

new

bon

ds w

ith

a 30

-yea

r bu

llet

mat

urit

y an

d in

tere

st i

ncre

asin

ggr

adua

lly

from

4 p

erce

nt i

n ye

aron

e, t

o 6

perc

ent

in y

ear

seve

n,an

d re

mai

ning

at

that

lev

el u

ntil

mat

urit

y.

Old

cla

im e

xcha

nged

at

par

for

new

bon

ds w

ith

a 15

-yea

r m

atu-

rity

(9

year

s' g

race

) an

d an

inte

rest

rat

e of

4 p

erce

nt i

n th

eye

ars

1-2,

4.5

per

cent

in

year

s3-

4, 5

per

cent

in

year

s 5-

6, a

ndL

IBO

R p

lus 1

3/16

from

yea

rs 7

to

15.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st g

uara

ntee

.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st g

uara

ntee

.

Tw

elve

-mon

thro

llin

g in

tere

st g

uar-

ante

e fo

r th

e fi

rst

six

year

s.

Cas

h pa

ymen

t of

$2.

0 bi

llio

n pa

iddu

ring

May

-Dec

embe

r 19

91.

The

pas

t du

e in

tere

st r

emai

ning

at

end

of 1

990

conv

erte

d in

to a

10-y

ear

bond

(3

year

s' g

race

) at

LIB

OR

plu

s 13/

16. In

tere

st d

ue i

n19

92-9

3 re

duce

d to

4 p

erce

nt.

Rem

aini

ng p

ast

due

inte

rest

acc

u-m

ulat

ed i

n 19

91 a

nd 1

992

is c

on-

vert

ed i

nto

12-y

ear

bond

s (3

year

s' g

race

) at

LIB

OR

plu

s 13

/16;

sem

iann

ual

amor

tiza

tion

pay

-m

ents

of

1 pe

rcen

t of

ori

gina

lpr

inci

pal

for

paym

ents

1-7

, 5

perc

ent

for

paym

ent

8, a

nd 8

per

-ce

nt b

onds

eli

gibl

e fo

r de

bt c

on-

vers

ions

for

pay

men

ts 9

-19.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

4 (c

ontin

ued)

Fac

e V

alue

of

Deb

tto

Com

mer

cial

Ban

ks

Ret

ired

Is

sued

R

esou

rces

Use

d T

erm

sE

nhan

cem

ents

for

New

Ins

trum

ents

Sp

ecia

l F

eatu

res

(In

mill

ions

of

U.S

. do

llars

)

Bu

lgar

ia (

1993

)C

ash

buy-

back

Pri

ncip

al r

educ

tion

Tem

pora

ry i

nter

est

redu

ctio

n

798

3,73

0

1,65

8

1,86

5

1,65

8

6522(e

xpec

ted

toco

me

from

IM

F,W

orld

Ban

k, a

ndow

n re

sour

ces)

.

Chi

le (

1988

)C

ash

buy-

back

43

9 24

8 (o

wn

reso

urce

s)

At

prea

nnou

nced

pri

ce o

f25

.187

5 ce

nts

on t

he d

olla

r.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds,

wit

h a

30-y

ear

bull

etm

atur

ity

and

inte

rest

at

LIB

OR

plus

13/1

6, at

pre

nego

tiat

edex

chan

ge r

atio

of

1:0.

50.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

an 1

8-ye

arm

atur

ity

(7 y

ears

' gra

ce)

and

anin

tere

st r

ate

of 2

per

cent

in

year

s 1-

2, 2

.25

perc

ent

in y

ears

3-4,

2.5

per

cent

in

year

5,

2.75

perc

ent

in y

ear

6, 3

per

cent

in

year

7,

and

LIB

OR

plu

s 13

$299

mil

lion

bou

ght

back

in

Nov

embe

r 19

88 a

t av

erag

e pr

ice

of 5

6 ce

nts

on t

he d

olla

r; $

140

mil

lion

bou

ght

back

in

Nov

em-

ber

1989

at

aver

age

pric

e of

58

cent

s on

the

dol

lar.

Pri

ce d

eter

-m

ined

in

Dut

ch a

ucti

on.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st.

Tw

elve

-mon

thro

llin

g in

tere

st g

uar-

ante

e fo

r th

e fi

rst

seve

n ye

ars.

Buy

-bac

k pr

ice

appl

ies

to p

rinc

i-pa

l an

d in

tere

st a

rrea

rs s

epar

atel

y.

At

clos

ing,

3 p

erce

nt o

f pa

st d

uein

tere

st w

ill

be s

ettl

ed t

hrou

ghca

sh p

aym

ents

. T

he b

alan

ce w

ill

be r

efin

ance

d as

an

unco

llat

eral

-iz

ed 1

7-ye

ar b

ond

(7 y

ears

'gr

ace)

bea

ring

int

eres

t of

LIB

OR

plus

% a

nd s

emia

nnua

l am

orti

za-

tion

pay

men

ts r

isin

g fr

om 1

per

-ce

nt o

f th

e or

igin

al f

ace

valu

e in

paym

ents

1-6

to

3 pe

rcen

t in

pay

-m

ents

7-1

1, t

o 6

perc

ent

in p

ay-

men

ts 1

2-16

and

to

9.8

perc

ent

inpa

ymen

ts 1

7-21

. V

alue

rec

over

ycl

ause

bas

ed o

n G

DP

perf

or-

man

ce.

Pac

kage

inc

lude

s sh

ort-

term

deb

t. A

spe

cial

iss

ue o

fdi

scou

nt a

nd t

empo

rary

int

eres

tre

duct

ion

bond

s w

ill

be m

ade

for

30 p

erce

nt o

f th

e sh

ort-

term

deb

tal

loca

ted

to t

hese

opt

ions

at

anin

tere

st r

ate 1

/2 of

1 p

erce

nt h

ighe

r.T

he p

acka

ge i

nclu

des

a cu

rren

cyop

tion

for

deu

tsch

e m

ark.

Agr

ee-

men

t li

mit

s al

loca

tion

for

tem

po-

rary

int

eres

t re

duct

ion

bond

s to

30 p

erce

nt.

Res

ourc

es u

sed

for

buy-

back

ssu

bjec

t to

agg

rega

te l

imit

of

$500

mil

lion

; de

bt t

o be

ext

ingu

ishe

dsu

bjec

t to

agg

rega

te c

eili

ng o

f $2

bill

ion.

fro

m y

ears

8 t

o 18

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Cos

ta R

ica

(198

9)C

ash

buy-

back

Col

late

rali

zed

debt

exc

hang

ew

ith

inte

rest

red

ucti

on

991

290

290

Non

coll

ater

aliz

ed d

ebt

exch

ange

wit

h in

tere

st r

educ

tion

289

289

1963 (

from

bil

at-

eral

and

mul

tila

t-er

al s

ourc

es a

ndC

osta

Ric

a's

own

rese

rves

)

Dom

inic

an R

epu

bli

c (1

993)

Cas

h bu

y-ba

ck

Pri

ncip

al r

educ

tion

272

505

328

Tem

pora

ry i

nter

est

redu

ctio

n

149

(ow

nre

sour

ces)

At

prea

nnou

nced

pri

ce o

f 16

cent

s on

the

dol

lar.

(a)

Old

deb

t ex

chan

ged

at p

arfo

r ne

w 2

0-ye

ar b

ond

(10

year

s'gr

ace)

car

ryin

g 6.

25 p

erce

ntfi

xed,

neg

otia

ted

rate

.

(b)

Pas

t du

e in

tere

st,

afte

r 20

perc

ent

cash

dow

npay

men

t,ex

chan

ged

at p

ar f

or a

new

clai

m w

ith

a 15

-yea

r m

atur

ity

(no

grac

e pe

riod

) an

d L

IBO

Rpl

us 1

3/16

.

(c)

Old

cla

ims

(inc

ludi

ng p

ast

due

inte

rest

) ex

chan

ged

at p

arfo

r a

new

25-

year

bon

d (1

5ye

ars'

gra

ce)

carr

ying

6.2

5 pe

r-ce

nt f

ixed

, ne

goti

ated

rat

e.

(d)

Pas

t du

e in

tere

st,

afte

r a

20pe

rcen

t ca

sh d

ownp

aym

ent,

exch

ange

d at

par

for

a n

ewcl

aim

wit

h a

15-y

ear

mat

urit

y(n

o gr

ace

peri

od)

and

LIB

OR

plus

13/

16.

At

prea

nnou

nced

pri

ce o

f 25

cent

s on

the

dol

lar.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds

wit

h 30

-yea

r bu

llet

mat

u-ri

ty a

nd i

nter

est

at L

IBO

R p

lus

% a

t pr

eneg

otia

ted

exch

ange

rate

of

1:0.

65.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

an 1

8-ye

arm

atur

ity

(9 y

ears

' gra

ce)

wit

heq

ual

sem

iann

ual

inst

allm

ents

afte

r gr

ace

and

an i

nter

est

rate

of 3

per

cent

in

year

s 1-

2, 3

.5pe

rcen

t in

yea

rs 3

-4,

4 pe

rcen

tin

yea

rs 5

-6,

and

LIB

OR

plu

s%

fro

m y

ears

7 t

o 18

.

(a)

Eig

htee

n-m

onth

inte

rest

gua

rant

ee(e

xces

s en

hanc

e-m

ent

fund

s to

be

appl

ied

to i

ncre

ase

cove

rage

up

to 1

8m

onth

s).

(b)

Thi

rty-

six

mon

thin

tere

st g

uara

ntee

.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd9-

mon

th r

olli

ngin

tere

st g

uara

ntee

(to

be c

apit

aliz

edun

til

12 m

onth

s).

Incl

udes

$22

3 m

illi

on o

f pa

st d

uein

tere

st.

(a)

and

(b)

avai

labl

e on

ly t

oba

nks

tend

erin

g at

lea

st 6

0 pe

r-ce

nt o

f th

eir

expo

sure

to

the

buy-

back

opt

ion.

Val

ue r

ecov

ery

clau

se l

inke

d to

GD

P gr

owth

.C

onve

rted

pas

t du

e in

tere

steq

uale

d $5

3 m

illi

on.

(c)

and

(d)

opti

onal

to

bank

s te

n-de

ring

les

s th

an 6

0 pe

rcen

t of

thei

r ex

posu

re (

incl

udin

g pa

st d

uein

tere

st)

to t

he b

uy-b

ack

opti

on.

Con

vert

ed p

ast

due

inte

rest

equa

led

$61

mil

lion

.

(a),

(b)

, (c

), a

nd (

d):

new

bon

dsel

igib

le f

or d

ebt-

equi

ty c

onve

r-si

on p

rogr

am.

Val

ue r

ecov

ery

clau

se a

ctiv

ated

if

GD

P ex

ceed

s 19

89 G

DP

by 1

20pe

rcen

t in

rea

l te

rms.

Buy

-bac

k pr

ice

appl

ies

to p

rinc

i-pa

l an

d in

tere

st a

rrea

rs s

epar

atel

y.

At

clos

ing,

12.

5 pe

rcen

t of

rem

aini

ng p

ast

due

inte

rest

will

be s

ettl

ed t

hrou

gh c

ash

paym

ents

.T

he b

alan

ce w

ill

be r

efin

ance

d as

unco

llat

eral

ized

15-

year

bon

ds(3

yea

rs' g

race

) be

arin

g in

tere

stof

LIB

OR

plu

s %

and

sem

i-an

nual

am

orti

zati

on p

aym

ents

ris

-in

g fr

om 1

per

cent

of

the

orig

inal

face

val

ue i

n pa

ymen

ts 1

-7 a

ndeq

ual

inst

allm

ents

the

reaf

ter.

Agr

eem

ent

incl

uded

a "

pull

-ba

ck"

clau

se i

f ba

nks'

all

ocat

ion

does

not

yie

ld a

t le

ast

50 p

erce

ntde

bt r

educ

tion

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

4 (c

ontin

ued)

Fac

e V

alue

of

Deb

tto

Com

mer

cial

Ban

ks

Ret

ired

Is

sued

R

esou

rces

Use

d T

erm

sE

nhan

cem

ents

for

New

Ins

trum

ents

S

peci

al F

eatu

res

(In

mill

ions

of

U.S

. do

llars

)

Ecu

ador

(199

4)P

rinc

ipal

red

ucti

on

Inte

rest

red

ucti

on

2,62

1

1,89

8

1,44

2

Gu

yan

a (1

992)

Cas

h bu

y-ba

ck

Jord

an (

1993

)C

ash

buy-

back

Pri

ncip

al r

educ

tion

5834 e

xpec

ted

toco

me

from

IM

F,W

orld

Ban

k, o

ffi-

cial

sou

rces

, an

dow

n re

sour

ces)

69

10 (

fully

fi

nanc

edby

ID

A d

ebt-

redu

ctio

n fa

cili

ty)

158

1185 (o

wn

reso

urce

s)

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds

wit

h 30

-yea

r bu

llet

mat

u-ri

ty a

nd i

nter

est

at L

IBO

R p

lus

% a

t pr

eneg

otia

ted

exch

ange

rati

o of

1:0

.55.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

30-y

ear

bull

etm

atur

ity

and

inte

rest

inc

reas

ing

grad

uall

y fr

om 3

per

cent

in

year

1 to

5 p

erce

nt i

n ye

ar 1

1, a

ndre

mai

ning

at

that

lev

el u

ntil

mat

urit

y.

At

prea

nnou

nced

pri

ce o

f 14

.5ce

nts

on t

he d

olla

r.

At

prea

nnou

nced

pri

ce o

f 39

cent

s on

the

dol

lar.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds

wit

h a

30-y

ear

bull

etm

atur

ity

and

inte

rest

at

LIB

OR

plus

% a

t pr

eneg

otia

ted

exch

ange

rat

io o

f 1:

0.65

.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st g

uara

ntee

base

d on

7 p

erce

nt.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd12

-mon

th r

olli

ngin

tere

st g

uara

ntee

at

3.75

per

cent

(to

be

capi

tali

zed

unti

l it

reac

hes

5 pe

rcen

t).

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd 6

-m

onth

rol

ling

int

er-

est

guar

ante

e ba

sed

on 8

per

cent

.

Part

of

past

due

int

eres

t se

ttle

dbe

fore

clo

sing

(th

roug

h ca

sh p

ay-

men

t of

$75

mil

lion

). T

he b

alan

cew

ill

be r

efin

ance

d as

an

unco

llat

-er

aliz

ed 2

0-ye

ar b

ond

(10

year

s'gr

ace)

bea

ring

int

eres

t of

LIB

OR

plus

% a

nd s

emia

nnua

l am

orti

za-

tion

pay

men

ts r

isin

g fr

om 2

.5 p

er-

cent

of

the

orig

inal

fac

e va

lue

inpa

ymen

ts 1

-6 t

o 4

perc

ent

in p

ay-

men

ts 7

-12,

to

6.78

per

cent

in

paym

ents

13

-21.

The

pas

t du

ein

tere

st b

ond

will

hav

e th

e op

tion

to c

apit

aliz

e in

tere

st d

ue i

n ex

cess

of t

he f

ollo

win

g ra

tes

duri

ng t

hefi

rst

6 ye

ars

of t

he b

ond:

3 p

er-

cent

in

year

s 1-

2, 3

.25

perc

ent

inye

ars

3-4,

and

3.7

5 pe

rcen

t in

year

s 5-

6. A

n un

coll

ater

aliz

ed 1

0-ye

ar i

nter

est

equa

liza

tion

bon

d fo

r$1

91 m

illi

on w

ill b

e is

sued

to

regu

lari

ze p

rese

ntly

dis

crim

ina-

tory

pay

men

ts t

o cr

edit

ors.

Exc

lude

s ex

port

cre

dit

debt

. B

uy-

back

pri

ce a

ppli

ed t

o pr

inci

pal,

past

due

int

eres

t ($

23.5

mil

lion

)ca

ncel

ed.

Buy

-bac

k pr

ice

appl

ies

to p

rinc

i-pa

l an

d in

tere

st a

rrea

rs s

epar

atel

y.

At

clos

ing,

50

perc

ent

of p

ast

due

inte

rest

ass

ocia

ted

wit

h th

e di

s-co

unt

exch

ange

and

10

perc

ent

ofpa

st d

ue i

nter

est

asso

ciat

ed w

ith

the

par

exch

ange

wil

l be

set

tled

thro

ugh

cash

pay

men

ts.

The

bal

-an

ce w

ill

be r

efin

ance

d as

unc

ol-

late

rali

zed

12-y

ear

bond

(3

year

s'gr

ace)

bea

ring

int

eres

t of

LIB

OR

plus

% a

nd e

qual

sem

iann

ual

inst

allm

ents

aft

er g

race

.

1.89

8

243

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Inte

rest

red

ucti

on

493

Mex

ico

(198

8)C

olla

tera

lize

d de

bt e

xcha

nge

wit

h pr

inci

pal

redu

ctio

n

Mex

cio(

1989

)C

olla

tera

lize

d de

bt e

xcha

nge

wit

h pr

inci

pal

redu

ctio

n

Inte

rest

red

ucti

on

Moz

amb

iqu

e (1

991)

Cas

h bu

y-ba

ck

3,67

1 2,

556

20,5

46

13,3

546

22,4

27

22,4

27

124

Nig

er(1

991)

Pri

ncip

al r

educ

tion

11

1

Inte

rest

red

ucti

on

555

(ow

nre

sour

ces)

7,12

2 (i

nclu

ding

reso

urce

s fr

omIM

F an

d W

orld

Ban

k)

12 (

incl

udin

gre

sour

ces

from

IDA

deb

t-re

duc-

tion

faci

lity

and

Fre

nch,

Sw

iss,

Sw

edis

h, a

ndD

utch

gra

nts)

23 (

incl

udin

gre

sour

ces

from

IDA

deb

t-re

duc-

tion

fac

ility

and

Fre

nch

and

Sw

iss

gran

ts)

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

a 30

-yea

r bu

llet

mat

urit

y an

d in

tere

st i

ncre

asin

ggr

adua

lly

star

ting

at

4 pe

rcen

t in

year

s 1-

4, 5

per

cent

in

year

5,

5.5

perc

ent

in y

ear

6 an

d 6

per-

cent

fro

m y

ears

7 t

o 30

.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nd w

ith

20-y

ear

bull

et m

atu-

rity

and

LIB

OR

plu

s 1 5/8

; ave

r-ag

e ex

chan

ge r

atio

1:

0.7

(det

erm

ined

in

Dut

ch a

ucti

on).

Old

cla

ims

exch

ange

d fo

r ne

wbo

nd w

ith

30-y

ear

bull

et m

atu-

rity

and

LIB

OR

plu

s 13

/16;

exch

ange

rat

io 1

:0.6

5 (n

egot

i-at

ed).

Old

cla

ims

exch

ange

d at

par

for

new

bon

d w

ith

30-y

ear

bull

etm

atur

ity

and

6.25

per

cent

fix

ed,

nego

tiat

ed i

nter

est

rate

.

At

a pr

eann

ounc

ed p

rice

of

10ce

nts

on t

he d

olla

r.

Old

cla

ims

exch

ange

d fo

r ne

w60

-day

not

es w

ith

face

val

ueeq

uiva

lent

to

18 p

erce

nt o

f ou

t-st

andi

ng f

ace

valu

e of

pri

ncip

al.

Old

cla

ims

exch

ange

d at

par

for

21-y

ear

non-

inte

rest

-bea

ring

note

s.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd 6

-m

onth

rol

ling

int

er-

est

guar

ante

e ba

sed

on 6

per

cent

.

Pri

ncip

al f

ully

coll

ater

aliz

ed.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd18

-mon

th r

olli

ngin

tere

st g

uara

ntee

Sam

e as

abo

ve

Pri

ncip

al f

ully

gua

r-an

teed

by

BC

EA

O.

Pri

ncip

al f

ully

col

-la

tera

lize

d by

zer

oco

upon

bon

ds p

ur-

chas

ed b

y th

eB

CE

AO

.

Inte

rest

due

aft

er M

arch

199

1 an

dun

til

the

clos

ing

date

red

uced

to

an i

nter

est

rate

of

4 pe

rcen

t.

New

bon

ds e

xclu

ded

from

fut

ure

new

mon

ey b

ase.

Rec

over

y cl

ause

in

case

rea

l oi

lpr

ices

exc

eed

thre

shol

d re

al p

rice

of $

14 a

bar

rel.

New

bon

dsex

clud

ed f

rom

fut

ure

new

mon

eyba

se a

nd e

ligi

ble

for

debt

-equ

ity

conv

ersi

on.

Buy

-bac

k pr

ice

appl

ied

to p

rinc

i-pa

l, pa

st d

ue i

nter

est

canc

eled

.

Buy

-bac

k pr

ice

appl

ied

to p

rinc

i-pa

l, pa

st d

ue i

nter

est

canc

eled

.O

pera

tion

has

bee

n st

ruct

ured

as

a no

vati

on,

that

is,

the

exc

hang

eof

a n

ew o

blig

atio

n fo

r an

old

obli

gati

on t

o av

oid

seek

ing

wai

vers

fro

m c

erta

in p

rovi

sion

sin

exi

stin

g lo

an c

ontr

acts

.

493

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

4 (c

ontin

ued)

Fac

e V

alue

of

Deb

tto

Com

mer

cial

Ban

ks

Ret

ired

Is

sued

R

esou

rces

Use

d T

erm

sE

nhan

cem

ents

for

New

Ins

trum

ents

Sp

ecia

l F

eatu

res

(In

mill

ions

of

U.S

. do

llars

)

Nig

eria

(19

91)

Cas

h bu

y-ba

ck

Inte

rest

red

ucti

on

3,39

0

2,04

8

1,35

6

2,04

8

Ph

ilip

pin

es (

1989

)C

ash

buy-

back

Ph

ilip

pin

es (

1992

)C

ash

buy-

back

Tem

pora

ry i

nter

est

redu

ctio

n

1,33

9

1,26

3

757

757

Pri

ncip

al c

olla

tera

lize

d in

tere

stre

duct

ion

1,89

4 1,

894

l,70

87 (ow

nre

sour

ces)

670

(inc

ludi

ngre

sour

ces

from

IMF

and

Wor

ldB

ank)

.

1,12

5 (i

nclu

ding

reso

urce

s fr

omIM

F, W

orld

Ban

k,E

xim

bank

Jap

an,

and

the

Phi

lip-

pine

s' o

wn

reso

urce

s)

At

prea

nnou

nced

pri

ce o

f 40

cent

s on

the

dol

lar.

Old

cla

ims

exch

ange

d at

par

for

new

reg

iste

red

bond

s w

ith

a 30

-ye

ar b

ulle

t m

atur

ity

and

a fi

xed

inte

rest

rat

e of

5.5

per

cent

for

3ye

ars

and

6.25

per

cent

the

re-

afte

r.

At

prea

nnou

nced

pri

ce o

f 50

cent

s on

the

dol

lar.

At

a pr

eann

ounc

ed p

rice

of

52ce

nts

on t

he d

olla

r.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

15-y

ear

mat

u-ri

ty (

7 ye

ars'

gra

ce)

and

anin

tere

st r

ate

of 4

per

cent

in

the

firs

t tw

o ye

ars,

5 p

erce

nt i

nye

ars

3-5,

6 p

erce

nt i

n ye

ar 6

,an

d L

IBO

R p

lus

% f

rom

yea

r 7

onw

ard.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

a 25

-yea

r bu

llet

mat

urit

y an

d an

int

eres

t ra

te t

hat

grad

uall

y ri

ses

from

4.2

5 pe

r-ce

nt i

n th

e fi

rst

year

to

6.5

per-

cent

in

the

sixt

h ye

ar a

ndre

mai

ns a

t th

at l

evel

unt

ilm

atur

ity.

Pri

ncip

al f

ully

col

-la

tera

lize

d by

U.S

.T

reas

ury

bond

s w

ith

a 12

-mon

th r

olli

ngin

tere

st g

uara

ntee

,ba

sed

on r

ate

of 6

.25

perc

ent.

Tw

elve

-mon

thro

llin

g in

tere

st g

uar-

ante

e ba

sed

on a

6pe

rcen

t an

nual

rat

efo

r th

e fi

rst

six

year

s.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd14

mon

ths'

rol

ling

inte

rest

gua

rant

eeba

sed

on a

rat

e of

6.5

perc

ent.

All

pas

t du

e in

tere

st c

lear

ed p

rior

to c

losi

ng d

ate.

Rec

over

y cl

ause

in t

he e

vent

tha

t oi

l pr

ices

exc

eed

thre

shol

d of

$28

a b

arre

l in

199

6,ad

just

ed f

or i

nfla

tion

th

erea

fter

.N

ew b

onds

eli

gibl

e fo

r de

bt c

on-

vers

ions

.

Incl

uded

wai

ver

for

seco

nd r

ound

of b

uy-b

acks

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Pol

and

(199

4)C

ash

buy-

back

Pri

ncip

al r

educ

tion

Inte

rest

red

ucti

on

2,45

4

5,33

6

1,74

3

2,93

5

1,74

3

Non

coll

ater

aliz

ed d

ebt

exch

ange

wit

h in

tere

st r

educ

tion

386

386

Uga

nd

a (1

993)

Cas

h bu

y-ba

ck

153

1,86

68 (ex

pect

edto

com

e fr

om I

MF,

Wor

ld B

ank,

off

i-ci

al s

ourc

es,

and

own

reso

urce

s)

18 (

incl

udin

gre

sour

ces

from

IDA

deb

t-re

duc-

tion

fac

ility

and

gran

ts f

rom

the

Net

herl

ands

,S

wit

zerl

and,

Ger

-m

any,

and

the

EC

)

At

prea

nnou

nced

pri

ce o

f 41

cent

s on

the

dol

lar

for

med

ium

-an

d lo

ng-t

erm

deb

t an

d 38

cen

tson

the

dol

lar

for

shor

t-te

rmde

bt.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nds

wit

h a

30-y

ear

bull

etm

atur

ity

and

inte

rest

at

LIB

OR

plus

% a

t pr

eneg

otia

ted

exch

ange

rat

io o

f 1:

0.55

.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

a 30

-yea

r bu

llet

mat

urit

y an

d in

tere

st i

ncre

asin

ggr

adua

lly

from

2.7

5 pe

rcen

t in

year

1 to

5 p

erce

nt f

rom

yea

r 21

onw

ard.

Old

cla

ims

exch

ange

d at

par

for

debt

con

vers

ion

bond

s w

ith

25-y

ear

mat

urit

y (2

0 ye

ars'

grac

e) a

nd i

nter

est

incr

easi

nggr

adua

lly

from

4.5

per

cent

in

year

1 to

7.5

per

cent

fro

m y

ear

11 a

nd r

emai

ning

at

that

lev

elun

til

mat

urit

y.

At

prea

nnou

nced

pri

ce o

f 12

cent

s on

the

dol

lar.

Pri

ncip

al f

ully

coll

ater

aliz

ed;

noin

tere

st c

olla

tera

l.

Pri

ncip

al f

ully

coll

ater

aliz

ed;

noin

tere

st c

olla

tera

l.

Sep

arat

e pa

r bo

nds

wit

h sl

ight

lydi

ffer

ent

inte

rest

pro

file

for

med

ium

- an

d lo

ng-t

erm

and

sho

rt-

term

deb

t. P

aym

ent

of 8

5 pe

rcen

tof

int

eres

t du

e in

Dec

embe

r 19

89an

d 30

per

cent

of

inte

rest

due

accr

uing

fro

m M

ay 1

993

expe

cted

befo

re c

losi

ng. T

he b

alan

ce w

ill

besu

bjec

t to

deb

t-se

rvic

e re

duct

ion

thro

ugh

an u

ncol

late

rali

zed

20-

year

bon

d (7

-yea

rs' g

race

) be

arin

gan

int

eres

t ra

te g

radu

ally

inc

reas

-in

g fr

om 3

.25

perc

ent

in y

ear

1 to

7 pe

rcen

t in

yea

r 9

and

rem

aini

ngat

tha

t le

vel

unti

l m

atur

ity.

Am

orti

-za

tion

pay

men

ts a

re s

emia

nnua

lri

sing

fro

m 1

per

cent

of

the

orig

i-na

l fa

ce v

alue

in

paym

ents

1-3

to

2 pe

rcen

t in

pay

men

ts 4

-6,

to 3

perc

ent

in p

aym

ents

7-1

7, t

o 5

perc

ent

in p

aym

ents

18-

23,

to 7

perc

ent

in p

aym

ents

24-

27.

Buy

-bac

k pr

ice

appl

ied

to p

rinc

i-pa

l, pa

st d

ue i

nter

est

canc

eled

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

4 (c

ontin

ued)

Fac

e V

alue

of

Deb

tto

Com

mer

cial

Ban

ks

Ret

ired

Issu

edR

esou

rces

Use

dT

erm

sE

nhan

cem

ents

for

New

Ins

trum

ents

Spec

ial

Fea

ture

s

(In

mill

ions

of

U.S

. do

llars

)

Uru

guay

(19

91)

Cas

h bu

y-ba

ck

633

Inte

rest

red

ucti

on

530

530

Ven

ezue

la (

1990

)C

olla

tera

lize

d de

bt e

xcha

nges

Pri

ncip

al r

educ

tion

1,

411

647

Pri

ncip

al r

educ

tion

1,

808

1,26

5

Inte

rest

red

ucti

on

7,45

0 7,

450

Tem

pora

ry i

nter

est

redu

ctio

n 3,

018

3,01

8

463

(inc

ludi

ngre

sour

ces

from

the

IDB

)

2,58

5 (i

nclu

ding

reso

urce

s fr

omIM

F an

d W

orld

Ban

k)

At

prea

nnou

nced

pri

ce o

f 56

cent

s on

the

dol

lar.

Old

cla

ims

exch

ange

d at

par

for

new

bon

ds w

ith

a 30

-yea

r bu

llet

mat

urit

y an

d a

fixe

d in

tere

st r

ate

of 6

.75

perc

ent.

Old

cla

ims

exch

ange

d fo

r ne

wth

ree-

mon

th n

otes

wit

h pr

esen

tva

lue

equa

l to

45

perc

ent

offa

ce v

alue

of

old

clai

ms.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nd w

ith

30-y

ear

mat

urit

y an

dL

IBO

R p

lus

% a

t pr

eneg

otia

ted

exch

ange

rat

io o

f 1:

0.70

.

Old

cla

ims

exch

ange

d at

par

for

new

bon

d w

ith

30-y

ear

mat

urit

yan

d fi

xed

inte

rest

rat

e of

6.7

5pe

rcen

t.

Old

cla

ims

exch

ange

d fo

r ne

wbo

nd w

ith

17-y

ear

mat

urit

y an

din

tere

st r

ate

of 5

per

cent

in

year

s 1-

2, 6

per

cent

in

year

s3-

4, 7

per

cent

in

year

fiv

e, a

ndL

IBO

R p

lus 7

/8 o

f 1 p

erce

ntth

erea

fter

.

Pri

ncip

al f

ully

col

-la

tera

lize

d an

d an

18-m

onth

rol

ling

inte

rest

gua

rant

ee.

Fac

e va

lue

of n

otes

fully

col

late

rali

zed

by s

hort

-ter

m U

.S.

Tre

asur

y se

curi

ties

.

Pri

ncip

al f

ully

coll

ater

aliz

ed a

nd14

-mon

th r

olli

ngin

tere

st g

uara

ntee

.

Prin

cipa

l fu

llyco

llat

eral

ized

and

14-m

onth

rol

ling

inte

rest

gua

rant

ee.

Tw

elve

-mon

thro

llin

g-in

tere

st g

uar-

ante

e fo

r th

e fi

rst

five

yea

rs.

Val

ue r

ecov

ery

clau

se a

llow

ing

for

larg

er p

aym

ents

in

the

even

tof

a f

avor

able

per

form

ance

of

anin

dex

of U

rugu

ay's

ter

ms

oftr

ade.

Eli

gibl

e fo

r de

bt-e

quit

y co

nver

-si

on.

Incl

udes

war

rant

s to

be

trig

gere

d in

cas

e oi

l pr

ices

exc

eed

thre

shol

d pr

ice

of $

26 a

bar

rel

in19

96,

adju

sted

for

inf

latio

n th

ere-

afte

r th

roug

h 20

20.

Eli

gibl

e fo

r de

bt-e

quit

yco

nver

sion

.

Zam

bia

(19

94)

200

22 (

incl

udin

gre

sour

ces

from

IDA

deb

t-re

duc-

tion

faci

lity

and

gran

ts f

rom

Ger

-m

any,

the

Net

her-

land

s, S

wed

en,

and

Sw

itze

rlan

d)

At

a pr

eann

ounc

ed p

rice

of

11ce

nts

on t

he d

olla

r.B

uy-b

ack

pric

e ap

plie

d to

pri

nci-

pal,

past

due

int

eres

t ca

ncel

ed.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Sou

rces

: D

ebt-

rest

ruct

urin

g ag

reem

ents

; an

d IM

F st

aff

esti

mat

es.

Not

e:

BC

EA

O =

Ban

que

Cen

tral

e de

s E

tats

de

L'A

friq

ue d

e L

'Oue

st;

IDA

= I

nter

nati

onal

Dev

elop

men

t A

ssoc

iati

on;

IDB

= I

nter

-Am

eric

an D

evel

opm

ent

Ban

k.'E

xclu

des

$700

mil

lion

in

dow

npay

men

t on

pas

t du

e in

tere

st.

2Exc

lude

s $6

4 m

illi

on i

n do

wnp

aym

ent

on p

ast

due

inte

rest

.3E

xclu

des

$29

mil

lion

in

dow

npay

men

t on

pas

t du

e in

tere

st.

4Exc

lude

s $7

5 m

illi

on i

n in

tere

st e

qual

izat

ion

paym

ents

.5E

xclu

des

$29

mil

lion

in

dow

npay

men

t on

pas

t du

e in

tere

st.

incl

ud

es $

2,44

7 m

illi

on o

f de

bt o

f do

mes

tic

com

mer

cial

ban

ks,

for

whi

ch n

o en

hanc

emen

ts w

ere

prov

ided

(th

e G

urri

a bo

nds)

.7E

xclu

des

$373

mil

lion

of

cash

pay

men

ts t

o cl

ear

all

inte

rest

arr

ears

.8E

xclu

des

$158

mil

lion

in

catc

h-up

and

dow

npay

men

t on

pas

t du

e in

tere

st.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion


Table A5. International Bond Issues by Developing Countries and Regions, by Type of Borrower(In millions of U.S. dollars)

Sovereign borrowersArgentinaBarbadosChileChinaColombiaCongoCzech RepublicCzechoslovakia, formerHungaryIsraelMexicoPhilippinesSlovak RepublicSouth AfricaThailandTrinidad and TobagoTunisiaTurkeyUruguayVenezuela

Other public sectorAlgeriaArgentinaBrazilChinaColombiaCosta RicaCzech RepublicCzechoslovakia, formerGuatemalaHong KongHungaryIndiaIndonesiaKoreaMacaoMalaysiaMexicoPhilippinesSlovak RepublicSouth AfricaThailandTurkeyVenezuela

1990

1,520—

———

887—40——

——

593——

3,55189—

——

—375

——

27380

755

—1,851

———

—127

1991

4,189500

200

——

2771,186

400620——

236

——

497—

273

3,827——

1,341115—

—

——

227

705

—1,192

——

17—

230

1992

5,490425

120

———

1,242—

377——

318300100—

2,508100—

8,054——

1,3201,359

—

—114

——

2501,742

—1,432

——

408

572857

1993

16,3782,111

582216—

697216

4,7332,002

352150240

343125—

3,725100

1,003

16,441—

3501,8372,443

250

—

6010263

3,987

9544,401

615—

250130

1,000

First Half

1993

6,502256

125—

375—

1,5801,000

259150—

149——

2,053100455

7,186—

150940

1,157150

—

—63

1,340

5002,462

175——

250—

1994

6,852657

20

1,823250

———

2581,958

——

189—

277720100—

6,185—

100350548

—50

250

——

100179437155600

3,24015421

—

60



Table A5 (concluded)

Private sectorArgentinaBoliviaBrazilChileChinaColombiaCzechoslovakia, formerHong KongIndiaIndonesiaKoreaMalaysiaMexicoPakistanPanamaPeruPhilippinesSingaporeTaiwan Province of ChinaThailandTurkeyUruguayVenezuela

Total

Memorandum itemsShare in total issues by developing

countries and regions (in percent)Sovereign issuesOther public issuesPrivate sector issues

1990

1,26321

—

—66

350—

586

—105—

——

135

6,335

24.056.119.9

1991

4,823295

496—

—100

3691,307

—1,971

—50

——

160———75

12,838

32.629.837.6

1992

10,2381,145

2,335

185

2431,466

—4,292

——60

312111—75

23,780

23.133.943.1

1993

26,6183,772

4,842433

23100

5,785546485

1,877—

6,030

30528

—79

1,6545040

345

59,437

27.627.744.8

First

1993

8,538535

2,022333

50

657

30674

—3,620

—

20—36

392504080

22,226

29.332.338.4

Half

1994

13,0741,610

10845

83

1,855534

1,2701,415

3651,457

45

80555

86876

1,92365——

26,111

26.223.750.1

Sources: IMF staff estimates based on International Financing Review, Euroweek, and Financial Times.

61


Tab

le A

6.

Yie

ld S

prea

d at

Lau

nch

for

Une

nhan

ced

Bon

d Is

sues

by

Dev

elop

ing

Cou

ntri

es a

nd R

egio

ns1

(In

basi

s po

ints

)

1993

1994

1990

1991

1992

1993

I

II

III

IV

I

H_

248

223

223

134

180

—

255

280

120

220

450

_

89

88

94

98

215

—

126

148

184

255

223

238

200

226

—

149

—

344

—

74

—

54

480

_

_

—

221

196

221

179

196

228

230

—

355

482

428

284

245

r public

sector

250

373

232

179

199

187

200

148

177

162

Algeria

540

446

465

518

528

390

413

407

—

145

395

Sov

erei

gn b

orro

wer

Arg

enti

naB

arba

dos

Chi

leC

hina

Col

ombi

aC

zech

Rep

ubli

cC

zech

oslo

vaki

a, f

orm

erH

unga

ryM

exic

oP

hili

ppin

esS

lova

k R

epub

lic

Sou

th A

fric

aT

hail

and

Tri

nida

d an

d T

obag

oT

unis

iaT

urke

yU

rugu

ayV

enez

uela

Oth

er p

ubli

c se

ctor

Alg

eria

Arg

enti

naB

razi

lC

hina

Col

ombi

aC

osta

Ric

aC

zech

Rep

ubli

cC

zech

oslo

vaki

a, f

orm

erG

uate

mal

aH

unga

ryIn

dia

Indo

nesi

aK

orea

Mal

aysi

aM

exic

oP

hili

ppin

esS

lova

k R

epub

lic

Sou

th A

fric

aT

hail

and

Tur

key

Ven

ezue

la

151 — — 133

— — — 166

— — 250

100

— — 96 — 127

— 366 — — — 260

261

456

150

281

249

201

190

— 234

222

294

150

240

215

198

100

565

207

275

230

269

00 OO

178

230 — 235

189

320

344 67

480

193

228

236 — — 270

240

208

320 57 — 205

— 446

110

— — — 129 89 205 — 159

242

440

465 82 217

605

324 83 96 192

250 40 205

440

518 57 — 82 190

— 43

— 528 64 218

324 86 100

182

310 38

— 390 98 — 605 89 213

265

413

108

215 — — 81 91 187

217

205

140

158 67

247

205

192

190

182

213

187

154

126

178

250

325

275

263

212

212

158

333

120

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Pri

vate

sec

tor

Arg

enti

naB

oliv

iaB

razi

lC

hile

Col

ombi

aC

zech

oslo

vaki

a, f

orm

erH

ong

Kon

gIn

dia

Indo

nesi

aK

orea

Mex

ico

Pan

ama

Peru

Phi

lipp

ines

Tha

ilan

dT

urke

yU

rugu

ayV

enez

uela

Tot

al

650

730 — — — — — — — 613 — — — — — 693

245

493

447

530 — — — — — 533 24 — — — — — 362

346

376

419

516 — 300

180

116

377 — — 43 250 — 375

282

348

397

505

194

310

118

110

410 87 358

706

375 60 — 300

469

259

424

623

642 —_

— 133

— 500 86

413 — — — 250 — — 288

370

533

563

210

320 — — 76 347 — — 58 — — 450

274

339

371 — 473 — 300 83 110

— 90 365 — 375 — — — 516

249

315

371

425

170

— 126

— 405 92 331

706 — 75 — — 468

243

256

310

428

386 — — — — 68 253 — 680 — 127 — — — 187

337

411 — 465

641 — 115

— 467 69 430 — — 340 94 — — — 259

Sou

rces

: IM

F st

aff

esti

mat

es b

ased

on

Inte

rnat

iona

l F

inan

cing

Rev

iew

, E

urow

eek,

and

Fin

anci

al

Tim

es.

'Yie

ld s

prea

d m

easu

red

as t

he d

iffe

renc

e be

twee

n th

e bo

nd y

ield

at

issu

e an

d th

e pr

evai

ling

yie

ld f

or i

ndus

tria

l co

untr

y go

vern

men

t bo

nds

in t

he s

ame

curr

ency

and

of

com

para

ble

mat

urit

y. A

ll f

igur

es a

re w

eigh

ted

aver

ages

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

7. M

atur

ing

Bon

ds o

f D

evel

opin

g C

ount

ries

and

Reg

ions

(In

mill

ions

of

U.S

. do

llars

)

Africa

Asia Ch

ina

Hong

Kon

gKorea

Thailand

Europe

Hungary

Turkey

Middle East

Western Hemisphere

Argentina

Brazil

Mexi

co

Total

1993 — 123 80 66 66 879

2,995

812

1,026

1,122

4,063

1994 159

578

378

200

1,160

4,947

435

2,381

1,986

7,045

1995 89

1,674

249

259

947

1,490

318

782 —

7,588

1,082

3,037

2,555

10,841

1996 236

3,451

398

710

1,535

79

2,629

1,138

1,015

160

9,421

1,730

2,559

3,451

15,897

1997 602

4,021

808 80

1,447

405

2,236

355

1,783

—

7,060

885

820

4,523

13,919

1998 —

6,887

1,658

1,893

2,219

574

2,875

1,097

1,658

352

10,590

2,100

1,566

5,753

20,704

1999 123

4,267

915

227

1,517

479

3,458

1,837

1,371

122

3,062

425

157

2,355

11,032

2000 —

4,064

198

2,194

818

149

2,916

1,399

1,075

340

3,058

960

100

1,437

10,378

2001 —

2,845

143

908

155

519

903

300

602 —

1,760

590

1,070

5,508

2002 —

1,325

50 750

340

875

443

432 —

1,035

350

485

3,235

2003 —

6,192

820

1,150

1,550

1,322

3,062

1,974

1,089

—

3,756

1,450

400

1,123

13,282

2004 877

2,629

1,000

364

935

402

288

117

2,035

350

1,435

6,060

2005-2007

—

1,021

786 — — —

1,021

Sou

rces

: In

tern

atio

nal

Fin

anci

ng R

evie

w;

Eur

owee

k;

and

IMF

staf

f es

tim

ates

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion


Table A8. International Bond Issues by Developing Countries by Currency of Denomination(In millions of U.S. dollars)

U.S. dollarAfrican borrowersAsian borrowersEuropean borrowersLatin American borrowersMiddle Eastern borrowers

Deutsche markAfrican borrowersAsian borrowersEuropean borrowersLatin American borrowers

YenAfrican borrowersAsian borrowersEuropean borrowersLatin American borrowers

European currency unit (ECU)African borrowersAsian borrowersEuropean borrowersLatin American borrowers

Other currenciesAsian borrowersEuropean borrowersLatin American borrowers

Total

Memorandum itemsShare in total issues by

developing countriesU.S. dollarsDeutsche markYenECUOther

Share in total issues in globalbond market

U.S. dollarsDeutsche markYenECUOther

1990

3,890—

960550

2,380—

1,69389

283983337

450—

259190—

127

127——

175127——

6,335

6127

723

328

149

38

1991

8,755—

1,683300

6,372400

1,618236

96961326

1,458—

1,001457

—

423

242181

585—

242181

12,838

68131135

307

141140

1992

16,991—

4,1431,014

11,834—

2,013408125

1,063417

3,554—

1,3062,247

—

630630

186126

593—

186126

23,780

718

1532

3911137

34

1993

44,192—

16,7001,395

24,0952,002

4,521

—3,2851,236

7,965—

3,0994,078

787

——

2,759———

59,437

(In percent)

748

1335

3613121138

First

1993

16,796—

4,301575

10,9201,000

1,699

—1,370

329

3,118—

1,0092,108

—

——

614220

67328

22,226

758

14

3

351312

140

Half

1994

21,207600

9,943336

8,3701,958

688

206—

482

2,692277

1,694720

—

——

1,5241,266

258—

26,111

813

10—

6

377

132

41

Sources: IMF staff estimates based on International Financing Review, Euroweek, and Financial Times.

65



Table A9. Enhancements of International Bond Issues by Developing Countries1

(Number of issues featuring enhancements in percent of total issues by region)

AfricaSecured

AsiaConvertiblePut optionWarrant

EuropeGuaranteedSecuredPut option

Middle EastGuaranteed

Western HemisphereConvertibleGuaranteedSecuredPut optionWarrant

All developing countriesConvertibleGuaranteedSecuredPut optionWarrant

Memorandum itemsAmount raised through enhanced instruments

(in percent of total)

All developing countriesAfricaAsia 7EuropeMiddle EastWestern Hemisphere

1990

_

—

1818——

77

—

_

—

413

2813—

2762

146

—

31—3911—59

1991

_

—

5656

4—

—

100100

22

814—

3320

149

—

31—18—

10034

1992

_

—

382525

6

14—

59

_

—

1811

108

—

22717

121

20—35

8—26

1993

_

—

484120

1

3—

3—

100100

121

471

251423

111

21—19

1100

12

First

1993

_

—

362323—

7—

7—

100100

122

461

20733

101

16—50

1100

13

Half

1994

5050

655634—

13—13—

100100

168

35

—

4836

33

22—

4368

510023

Sources: IMF staff estimates based on International Financing Review, Euroweek, and Financial Times.1 Totals by region may be smaller than the sum of their components because some issues feature multiple enhancements.

66



Table A10. Granger Causality Tests on Daily Data of Brady Par Bond Prices1

DependentVariable

Argentina

Brazil

Venezuela

Philippines

Nigeria

Mexico

Source: Reuters Data Base.Note: * denotes that coefficients are statistically significant at a 5 percent level; ** denotes that coefficients are statistically significant at

a 1 percent level.'The following regression was tried for different lags (i.e., different values of k). If Granger causality was found for k > 1, only the value

for k - 1 is reported here:

IndependentVariable

Mexico

Mexico

Mexico

Mexico

Mexico

ArgentinaBrazilVenezuelaPhilippinesNigeria

Coefficientfor

IndependentVariable (Bi()

0.0276

0.0499

-0.0022

0.0173

0.0056

-0.0088-0.00530.0034

-0.00470.0021

T-Value

2.2250

2.2753

-0.6335

3.7506

1.6855

-1.4816-0.80100.9191

-1.12910.4741

(*)

(*)

(**)

Sample Period

01/02/91-06/20/94

07/30/93-06/20/94

01/02/91-06/20/94

01/02/91-06/20/94

01/02/91-06/20/94

01/02/91-06/20/9407/30/93-06/20/9401/02/91-06/20/9401/02/91-06/20/9401/02/91-06/20/94

where if /3; = 0 (/ = 1,2,3, . . . , k), xt fails to cause yt.

67



Table All . Granger Causality Tests on Daily Data of Sovereign Eurobond Prices1

DependentVariable

IndependentVariable

Coefficientfor

IndependentVariable (fi{) T-Value Sample Period

Argentina (1)(2)

Brazil (1)(2)

Venezuela (1)(2)(3)

Philippines (1)

(2)

Turkey (1)

Hungary (1)

Mexico (1)

Mexico (1)

Mexico (1)

Mexico (1)

Mexico (1)

Mexico (1)

Mexico (1)

Argentina (1)(2)

Brazil (1)(2)

Venezuela (1)(2)(3)

Philippines (1)(2)

Turkey (1)Hungary (1)

-0.00420.0118

0.00410.0107

0.03390.02790.1271

0.01290.0808

0.0234

0.0653

0.0121-0.0016-0.0023-0.0035-0.00090.00130.0016

-0.0065-0.00280.0059

-0.0039

-1.41891.8193

1.54293.1970

3.33073.39782.1626

2.53203.7377

3.6438

5.3052

2.8046-0.6937-1.2590-0.7198-0.13390.50370.6114

-1.3571-0.3609

1.6003-1.4616

(**)

(**)(**)(*)

(*)(**)

(**)

(**)

(**)

09/13/91-10/06/9309/30/92-06/24/94

05/22/92-06/24/9409/18/91-06/24/94

03/09/93-06/24/9408/23/91-06/24/9411/14/91-06/24/94

02/23/93-06/24/9407/22/93-06/24/94

07/31/90-06/24/94

06/21/91-06/24/94

09/13/91-10/06/9309/30/92-06/24/9405/22/92-06/24/9409/18/91-06/24/9403/09/93-06/24/9408/23/91-06/24/9411/14/91-06/24/9402/23/93-06/24/9407/22/93-06/24/9407/31/90-06/24/9406/21/91-06/24/94

Source: Reuters Data Base.Note: * denotes that coefficients are statistically significant at a 5 percent level; :

a 1 percent level.'The following regression was tried for different lags (i.e., different values of k).

for k = 1 is reported here:

* denotes that coefficients are statistically significant at

If Granger causality was found for k > 1, only the value

where if pj = 0 (/ = 1,2,3, . . . , k ) , xt fails to cause yt.

68


Tab

le A

12.

Em

ergi

ng M

arke

ts M

utua

l Fu

nds

(Net

ass

ets

in m

illio

ns o

f U

.S.

dolla

rs)

Eq

uit

ies

Glo

bal

Asi

a Reg

iona

lC

hina

Hon

g K

ong

Indi

aIn

done

sia

Kor

eaM

alay

sia

and

Sin

gapo

reP

akis

tan

Phi

lipp

ines

Sri

Lan

kaT

aiw

an P

rovi

nce

of C

hina

Tha

ilan

dV

iet

Nam

Lat

in A

mer

ica

Reg

iona

lA

rgen

tina

Bra

zil

Chi

leC

olom

bia

Mex

ico

Per

u

Eur

ope

Reg

iona

lT

urke

y

Afr

ica

Bon

ds Tot

al f

unds

Net

asse

ts

5,85

7

900

4,43

71,

750 47 270 35 990 75 — 45 — 80 845 — 520 — — 220 — — 300 — — — — 275

6,13

2

1988

Num

ber

of f

unds

91 15 72 35 2 3 1 10 3—

3— 4 11 — 4 — — 3—

1— _ — — —

1989

Net

asse

ts

9,97

5

1,35

0

7,43

53,

100 50 300

260

1,21

524

0 — 280 — 600

1,39

0 — 985

175 — 320

160

330 — 205 90 115

— 500

10,4

75

Num

ber

of f

unds

142 18 112 50 2 4 7 13 7 — 7

— 4 18 — 9 2—

3 2 2—

3 2 1

—

Net

asse

ts

13,3

20

2,30

0

9,24

04,

000 60 830

525

1,20

550

5 — 240 — 475

1,40

0 —

1,45

538

0 — 165

380

530 — 325

210

115

— 900

14,2

20

1990

Num

ber

of f

unds

225 29 174 75 3 6 18 17 17 —8

— 5 25 — 16 5—

3 4 4 — 6 4 2

—

1991

Net

asse

ts

19,1

80

3,75

0

11,5

755,

350

110

970

400

1,31

060

0 65 290 — 890

1,58

0 10

3,52

51,

510

115

380

740

780 — 330

240 90 —

1,70

0

20,8

80

Num

ber

of f

unds

290 39 211 92 4 6 18 24 17 2 8

— 13 261

33 18 2 4 4 5 — 7 5 2

—

1992

Net

asse

ts

29,5

35

7,75

0

16,8

238,

000

1,30

034

81,

090

440

1,71

064

5 65 350 — 925

1,92

0 30

4,51

72,

000

105

485

850 17

1,04

0 20

430

350 80 15

3,75

0

33,2

85

Num

ber

of f

unds

465 78 312

115 34 19 7 21 38 23 3 9 — 15 26 2 64 40 2 8 4 1 8 1 10 8 2 1

1993

Net

asse

ts

73,0

43

24,7

50

38,4

6521

,500

3,22

059

12,

055

860

3,42

01,

039

310

670 30

1,86

02,

860 50

9,06

85,

200

170

625

1,11

5 631,

865 30

715

570

145 45

8,50

0

81,5

43

Num

ber

of f

unds

573

108

372

130

48 20 13 22 56 21 6 10 1 16 26 3 78 53 3 8 4 1 8 1 13 11 2 2

Sou

rces

: E

mer

ging

Mar

ket

Fun

ds R

esea

rch,

Inc

; an

d L

ippe

r A

naly

tica

l S

ervi

ces,

Inc

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion


Table A13. Net Bond and Equity Purchases by Emerging Markets Mutual Funds1


Equities

Global

AsiaRegionalChinaHong KongIndiaIndonesiaKoreaMalaysia and SingaporePakistanPhilippinesSri LankaTaiwan Province of ChinaThailandViet Nam

Latin AmericaRegionalArgentinaBrazilChileColombiaMexicoPeru

EuropeRegionalTurkey

Africa

Bonds

Total funds

1989

784

-32

620317-14

—24

13216092

131—

-78-145

—

120106—50

118

-154—

755322

—

784

1990

6,464

1,076

4,6321,976

26—

412285407331

302—

368525—

652185'—

244124

99—

103102

1

—

400

6,864

1991

2,511

457

1,79887640—

2146352

5425

-6 9—

427-64

9

57267

21- 6 0-13

-158—

19914158

—

323

2,834

1992

8,448

3,908

3,385- 1,577

1,016271-77

30342-64

343

—388

-15016

738446

28108

712

11720

393313

80

24

827

9,275

1993

12,615

6,372

4,9493,075

857-74563-35

1,131-140

95-84

1790

-540- 4

1,4031,320

- 6-149

- 425

2135

-115-81-33

6

248

12,864

Sources: Emerging Market Funds Research, Inc.; Lipper Analytical Services, Inc.; and IMF staff estimates.1Estimated by deflating changes in the stock of fund net assets by IFC investable share prices indices for equities and by the J.R Morgan

Eurobond price index for bonds.

70



Table A14. Issues of Closed(In millions of U.S. dollars)


Global funds

AfricaMulticountrySpecific country

MauritiusSouth Africa

AsiaMulticountrySpecific country or region

ChinaIndiaIndonesiaKoreaMalaysiaPakistanPhilippinesSingaporeSri LankaTaiwan Province of ChinaThailandViet Nam

EuropeMulticountrySpecific country

BulgariaCzechoslovakiaHungaryPolandTurkey

Middle EastEgyptIsrael

Western HemisphereMulticountrySpecific country

ArgentinaBrazilChileMexicoVenezuela

Memorandum itemsEquity fundsFixed income funds

End Funds

1989

1,859

76

_——

—

1,417487930

168199—

150—

253—

56105—

13645

136—

80

56

_——

230178230

——

230

—

Targeting

1990

3,482

36

_——

—

1,895602

1,294

105312478292

———

107—

976841135—

100

35

_——

575203372

——

180192—

Emerging

1991

1,193

253

_——

—

213—

213

140—23——

40

10

———

—

—

_——

727440288

56—

132100

Markets in

1992

1,421

137

_————

87022

848646

170—

6——

26

—

122—

122—312269—

_——

293181112—

112

——

Developing Countries

1993

4,151

2,669

16——16—

1,373566806456

110—

178——

62

3232——

—

—

5050—

1010———

—

2,0752,076

and Regions

1994

I

4,246

1,042

369302

66

66

2,095651

1,444192

1,138———

——5064

—

312312——

—

—

146—

146

283283———

—

4,098148

II

510

106

_——

—

122—

122

122———————

—

———

—

—

_——

282282———

—

381129

Source: Lipper Analytical Services, Inc.

71



Table A15. Bank Credit Commitments by Country or Region of Destination1

(In billions of U.S. dollars)


AfricaAlgeriaAngolaCote d'lvoireGhanaMoroccoNigeriaSouth AfricaTunisiaZimbabweOther

AsiaChinaHong KongIndiaIndonesiaKoreaMalaysiaPakistanPhilippinesSingaporeTaiwan Province of ChinaThailandViet NamOther

EuropeBulgariaCzech RepublicHungarySlovak RepublicTurkeyU.S.S.R., formerOther

Middle EastBahrainEgyptKuwaitJordanSaudi ArabiaOther

Western HemisphereArgentinaBrazilChileColombiaMexicoUruguayVenezuelaBanking centers (Cayman

and Bahamas)Other

Memorandum itemsTotal bank credit commitmentsShare of bank credit commitments

to developing countries in total(in percent)

1990

24.6

0.6——

0.10.1—

—

0.4

13.41.51.10.73.92.00.50.40.70.30.81.3—0.2.

4.9

——1.83.00.1

1.71.6—

0.10.1

4.0—

0.3—1.6—1.4

—0.7

124.5

19.8

1991

28.5

0.20.1—

0.1

—

—0.1—

14.62.30.7—5.03.50.20.1—0.40.71.6—0.3

1.9

0.1—1.6—0.2

10.70.4—5.5

4.50.3

1.0—

—0.20.60.1—

—0.1

116.0

24.6

1992

18.5

0.6—0.3

0.1

——0.1

0.1

11.92.71.00.21.81.81.2

—0.40.82.0——

2.1

0.2—1.8—0.1

3.00.1—

2.9—

0.9—0.20.4—0.2—

0.2

——

117.9

15.7

1993

21.2

0.2——

—

——0.10.1—

15.73.62.0—1.91.91.6

—0.40.93.4——

2.6

0.20.30.11.9——

0.40.1—

0.20.1

2.20.40.20.30.10.4—0.8

0.1—

136.7

15.5

First Half1993

11.2

0.1——

—

—

0.1

—

8.72.61.2—0.71.20.8

—0.40.31.4—0.1

1.4

0.20.1—1.0—0.1

0.30.1—

0.2—

0.7—

0.10.4—0.2

——

74.1

15.2

1994

11.4

0.1———0.1

——0.1

—

9.21.90.60.11.60.81.7

——

2.3—0.2

0.6

—0.2—0.2—0.2

1.30.5—

0.20.6

0.2—

0.1—0.1——

——

54.8

20.7

Source: Organization for Economic Cooperation and Development, Financial Statistics Monthly.'Covers only medium- and long-term loans that are not insured by export credit agencies and includes offshore banking centers.

72


Tab

le A

16.

Ter

ms

on S

yndi

cate

d B

ank

Cre

dits

for

Sel

ecte

d D

evel

opin

g C

ount

ries

and

Reg

ions

1

1990

Mat

urit

y S

prea

d M

atur

ity

1991

Spr

ead

1992

Mat

urit

y S

prea

d

1993

Mat

urit

y S

prea

d

Jan.

-Jun

e

Mat

urit

y

1993

Spr

ead

Jan.

-Jun

e

Mat

urit

y

1994

Spr

ead

Afr

ica

Alg

eria

Tun

isia

Zim

babw

e

Asi

a Chi

naH

ong

Kon

gIn

dia

Indo

nesi

aK

orea

Mal

aysi

aP

akis

tan

Sin

gapo

reT

aiw

an P

rovi

nce

of C

hina

Tha

ilan

d

Eur

ope

Hun

gary

2

Tur

key2

Mid

dle

Eas

tB

ahra

inK

uwai

tSa

udi

Ara

bia

Wes

tern

Hem

isph

ere

Chi

leC

olom

bia

Mex

ico

Uru

guay

Ven

ezue

la

10.8

5.3

9.1

10.5

10.2

13.3

13.0

9.3

61 52 32 76 48 58 100 34

(In

year

s)

(In

basi

s (I

n ye

ars)

poin

ts)

7.0

1.0

9.3

7.8

9.5

1.0

3.8

2.3

7.8

6.0

2.4

4.8

5.0

3.0

12.8

13.0

8.8

8.0

2.2

8.6

14.4

54 82 65 43

(In

basi

spo

ints

)

75 85 114 66 67 102 90 134 93 78 138 85 67 50 38 150

(In ye

ars)

4.0 1.0

7.5

6.5

4.6

5.7

5.5

9.9

2.4

5.3

6.1

2.9

2.0

9.0

1.0

1.2

(In

basi

spo

ints

)

101 85 111 96 100

134 68 78 104 82 134

133 75 38 75 134

(In ye

ars)

(I

n ba

sis

poin

ts)

6.0 1.0

7.9

7.8

5.0

3.0

4.0

6.4

3.6

5.1

8.3

2.7

4.2

6.7

6.5

126 95 96 69 260

157 66 57 110

104

102

200 94 125

300

223

(In years)

(In basis

points)

6.0

7.5

9.2

3.7

4.8

7.8

5.3

4.3

4.8

9.9

2.8

6.7

126

300

174

(In

year

s)

(In

basi

spo

ints

)

99 53 155 64 60 1.25

101 99 266 90

7.7

6.4

2.2

4.2

6.0

10.9 3.0

5.0

4.7

5.3

2.0

5.8

3.0

98 58 140

126 78 93 125

100 98 172 65 99 100

6.0

250

Sou

rces

: O

rgan

izat

ion

for

Eco

nom

ic C

oope

rati

on a

nd D

evel

opm

ent

(OE

CD

); a

nd E

urom

oney

Loa

nwar

e.'E

xclu

des

conc

erte

d co

mm

itm

ents

.2B

ased

on

Eur

omon

ey L

oanw

are

for

1992

-Jun

e 19

94.

8998

8.8

8.8

999.

98.

8

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion


Table A17. Correlation Among Total Returns on Bonds for Selected Countries

United StatesHungaryTurkeyVenezuelaBrazilArgentinaMexicoThailand

United StatesHungaryTurkeyVenezuelaBrazilArgentinaMexicoThailand

United States

1.000.250.650.480.19

—0.660.94

United States

1.000.960.950.740.510.800.880.98

Hungary

1.000.160.320.27

-0.060.650.33

Hungary

1.000.880.670.610.920.980.96

Turkey

1.00-0.03-0.29

0.160.440.65

Turkey

1.000.600.240.670.780.92

April 1992-December 1993Venezuela

1.000.35

-0.030.710.48

January-JuneVenezuela

1.000.590.460.600.64

Brazil

1.00-0.24

0.330.16

1994Brazil

1.000.750.680.56

Argentina

1.000.090.01

Argentina

1.000.960.88

Mexico

1.000.72

Mexico

1.000.90

Thailand

1.00

Thailand

1.00

Sources: Reuters News Service; and Bloomberg Business News.

74


Tab

le A

18.

Cor

rela

tion

Am

ong

Seco

ndar

y M

arke

t P

rice

s of

Bra

dy B

onds

Arg

entin

aB

razi

lB

ulga

ria

Ecu

ador

Mex

ico

Mor

occo

Nig

eria

Pan

ama

Per

uP

hili

ppin

esP

olan

dR

ussi

aV

enez

uela

Thi

rty-

year

U.S

.T

reas

ury

bond

Arg

enti

naB

razi

lB

ulga

ria

Ecu

ador

Mex

ico

Mor

occo

Nig

eria

Pan

ama

Per

uP

hili

ppin

esP

olan

dR

ussi

aV

enez

uela

Thi

rty-

year

U.S

.T

reas

ury

bond

Arg

enti

na

1.00

0.47

0.27

0.60

0.50

0.70

0.72

0.77

0.14

0.30

0.61

0.07

0.31

0.06

Arg

enti

na

1.00

0.97

0.92

0.87

0.98

0.98

0.96

0.90

0.96

0.97

0.94

0.95

0.94

0.88

Bra

zil

1.00

1.65

-0.1

4-0

.24

-0.0

70.

720.

20-0

.26

-0.5

2-0

.15

0.74

0.12

-0.6

8

Bra

zil

1.00

0.91

0.82

0.93

0.98

0.92

0.82

0.92

0.91

0.90

0.93

0.95

0.87

Bul

gari

a

1.00

-0.0

5-0

.12

-0.2

00.

510.

17-0

.43

-0.3

6-0

.20

0.54

0.50

-0.4

5

Bul

gari

a

1.00

0.94

0.93

0.91

0.88

0.92

0.97

0.90

0.98

0.94

0.85

0.73

Ecu

ador

1.00

0.80

0.86

0.14

0.64

0.50

0.82

0.73

-0.4

80.

41

0.53

Ecu

ador

1.00

0.89

0.82

0.85

0.96

0.96

0.86

0.93

0.90

0.76

0.58

Mex

ico

1.00

0.75

0.10

0.51

0.28

0.79

0.73

-0.5

30.

53

0.73

Mex

ico

1.00

0.95

0.95

0.92

0.96

0.94

0.95

0.95

0.89

0.85

Feb

ruar

y-D

ecem

ber

Mor

occo

1.00

0.22

0.76

0.53

0.74

0.85

-0.4

80.

18

0.55

Nig

eria

1.00

0.35

-0.1

3-0

.21

0.03

0.55

0.34

-0.4

0

Janu

ary-

Dec

embe

r

Mor

occo

1.00

0.93

0.83

0.93

0.93

0.91

0.94

0.96

0.90

Nig

eria

1.00

0.89

0.93

0.94

0.89

0.94

0.87

0.85

1992

Pan

ama

1.00

0.14

0.45

0.78

-0.2

60.

28

0.35

1993

Pan

ama

1.00

0.96

0.89

0.94

0.91

0.75

0.63

Per

u

1.00

0.62

0.23

-0.3

1-0

.28

0.27

Per

u

1.00

0.94

0.98

0.96

0.86

0.75

Phi

lipp

ines

1.00

0.64

-0.6

60.

25

0.75

Phi

lipp

ines

1.00

0.91

0.89

0.91

0.84

Pol

and

1.00

-0.6

30.

16

0.67

Pol

and

1.00

0.94

0.85

0.76

Rus

sia

1.00

-0.0

1

-0.8

8

Rus

sia

1.00

0.86

0.81

Ven

ezue

la

1.00

0.21

Ven

ezue

la

1.00

0.87

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Tab

le A

18 (

conc

lude

d)

Arg

entin

aB

razi

lB

ulga

riaE

cuad

orM

exic

oM

oroc

coN

iger

iaPa

nam

aPe

ruPh

ilipp

ines

Pola

ndR

ussi

aV

enez

uela

Thi

rty-y

ear U

.S.

Tre

asur

y bo

nd

Arg

entin

a

1.00

0.87

0.84

0.90

0.98

0.90

0.98

0.85

0.94

0.98

0.97

0.11

0.97

0.95

Bra

zil

1.00

0.95

0.86

0.91

0.64

0.89

0.86

0.91

0.88

0.83

0.68

0.85

0.94

Bul

garia

1.00

0.76

0.87

0.58

0.83

0.77

0.82

0.83

0.77

0.65

0.80

0.89

Ecu

ador

1.00

0.91

0.87

0.92

0.93

0.95

0.89

0.92

0.75

0.89

0.86

Mex

ico

1.00

0.84

0.97

0.85

0.95

0.96

0.95

0.86

0.97

0.97

Febr

uary

-Dec

embe

rM

oroc

co

1.00

0.86

0.82

0.86

0.88

0.92

0.77

0.86

0.76

Nig

eria

1.00

0.83

0.95

0.97

0.96

0.86

0.92

0.96

1992

Pana

ma

1.00

0.94

0.86

0.86

0.60

0.78

0.83

Peru

1.00

0.95

0.94

0.79

0.92

0.93

Phili

ppin

es

1.00

0.95

0.83

0.96

0.95

Pola

nd

1.00

0.87

0.96

0.90

Rus

sia

1.00

-0.0

1

0.80

Ven

ezue

la

1.00

0.94

Sour

ce:

Salo

mon

Bro

ther

s.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion


Table A19. Correlation Among Total Returns on Equity for Selected Countries

BrazilMexicoArgentinaVenezuelaThailandMalaysiaTurkeyUnited StatesUnited KingdomJapan

BrazilMexicoArgentinaVenezuelaThailandMalaysiaTurkeyUnited StatesUnited KingdomJapan

Brazil

1.000.170.390.27

-0.12-0.08

0.100.640.140.20

Brazil

1.000.430.310.37

-0.64-0.74

0.060.760.690.88

Mexico

1.000.42

-0.060.300.40

-0.420.290.56

-0.11

Mexico

1.000.960.180.40

-0.340.070.400.740.17

Argentina

1.00-0.03

0.230.14

-0.070.270.49

—

Argentina

1.000.350.46

-0.18-0.08

0.290.730.12

January 1992-December

Venezuela

1.000.040.260.280.22

-0.24-0.10

Venezuela

1.00-0.23-0.07-0.32

0.340.390.51

Thailand

1.000.520.05

-0.100.27

-0.04

Malaysia

1.000.15

-0.130.330.20

January-June 1994

Thailand

1.000.430.18

-0.30-0.12-0.72

Malaysia

1.00-0.03-0.45-0.18-0.37

1993

Turkey

1.00-0.07-0.21

0.17

Turkey

1.000.62

-0.070.13

United States

1.000.350.14

United States

1.000.540.78

United Kingdom

1.000.19

United Kingdom

1.000.67

Japan

1.00

Japan

1.00

Source: IFC Emerging Markets data base.

77


Tab

le A

20.

Prov

isio

ning

Reg

ulat

ions

Aga

inst

Cla

ims

on D

evel

opin

g C

ount

ries

Cou

ntry

Bel

gium

Can

ada

Fra

nce

Japa

n

Net

herl

ands

Sw

itze

rlan

d

Pro

visi

onin

gR

egul

atio

nsP

roce

ss f

orG

radu

atio

n

Act

ual

Ran

ge o

fP

rovi

sion

ing1

(End

of

1992

)

Tra

de/I

nter

bank

Cla

ims

Gua

rant

eed

OE

CD

Exp

ort

Cre

dit

Age

ncy

Col

late

rali

zed

Cla

ims2

Sub

part

icip

atio

nof

Off

icia

l A

genc

y/IF

Is

Man

dato

ry:

20,

30, 5

0,an

d 60

per

cent

on

4gr

oups

of

coun

trie

s.

Man

dato

ry:

Min

imum

35

perc

ent

to46

cou

ntri

es.

Man

dato

ry:

Ave

rage

55 p

erce

nt t

o ab

out

80co

untr

ies.

7

Vol

unta

ry.8

Indi

cati

ve:

30 p

erce

nt t

oun

disc

lose

d ba

sket

of

coun

trie

s.10

Man

dato

ry:

10-9

0 pe

rcen

t ag

ains

tap

prox

imat

ely

45co

untr

ies.

Indi

cati

ve:

5-10

0 pe

rcen

t ag

ains

tap

prox

imat

ely

90co

untr

ies.

Pro

visi

onin

g le

vels

revi

ewed

sem

i-an

nual

ly.

Cou

ntry

rem

oved

afte

r la

pse

of 5

yea

rssi

nce

prev

ious

resc

hedu

ling

.4

Cou

ntry

con

side

red

for

rem

oval

fro

mba

sket

if

bank

s co

n-si

sten

tly

redu

ce p

ro-

visi

onin

g fo

r th

eco

untr

y.

Not

app

lica

ble.

Cou

ntry

rem

oved

from

bas

ket

afte

r 5

year

s ha

ve l

apse

dsi

nce

prev

ious

resc

hedu

ling

.

Pro

visi

onin

g le

vels

revi

ewed

sem

i-an

nual

ly.

55-6

0 pe

rcen

t

50-6

3 pe

rcen

t5

37-6

8 pe

rcen

t

73-9

0 pe

rcen

t

30-3

5 pe

rcen

t

60

perc

ent

60-9

0 pe

rcen

t

Tra

de c

redi

ts t

o li

mit

of

12 m

onth

s' e

xpos

ure

base

(pro

visi

onin

g re

quir

ed o

nno

nper

form

ing

trad

e cr

ed-

its w

ith

arre

ars

of m

ore

than

six

mon

ths)

.

No

spec

ific

gui

danc

e on

allo

cati

on o

f pr

ovis

ioni

ngby

typ

e of

cre

dit.

Exp

osur

e ba

se i

nclu

des

shor

t-te

rm i

nter

bank

clai

ms

but

excl

udes

sho

rt-

term

tra

de c

redi

ts a

ndth

ose

guar

ante

ed b

yO

EC

D e

xpor

t cr

edit

agen

cies

.

Cas

e by

cas

e.9

No

spec

ific

gui

danc

e on

allo

cati

on o

f pr

ovis

ioni

ngby

typ

e of

cre

dit.

Exp

osur

e ba

se e

xclu

des

clai

ms

for

whi

ch a

guar

ante

e ha

s be

enob

tain

ed.

Ban

ks m

ay i

ndiv

idua

lly

deci

de o

n th

e le

vel

of p

ro-

visi

ons

for

shor

t-te

rmcr

edit

.

Tha

t pa

rt o

f th

ecl

aim

whi

ch i

sle

gall

y se

cure

d by

aca

sh d

epos

it,

orse

curi

ties

iss

ued,

is

exem

pted

.

Exc

lusi

on f

or O

EC

Dgo

vern

men

t se

curi

-ti

es u

sed

as c

olla

t-er

al o

n pr

inci

pal.

6

For

col

late

rali

zed

prin

cipa

l, pr

ovis

ion-

ing

cons

ider

edun

war

rant

ed.

Cas

e by

cas

e.9

Pre

sent

val

ue o

f co

l-la

tera

l on

int

eres

t or

prin

cipa

l ta

ken

into

cons

ider

atio

n.

Cer

tain

col

late

ral-

ized

cre

dit

isex

clud

ed.

For

col

late

rali

zed

prin

cipa

l, pr

ovis

ion-

ing

cons

ider

edun

war

rant

ed.

Cou

ntry

Dis

crim

i-na

tion

3

Par

tici

pati

on i

n "B

" Y

eslo

ans

of t

he I

FC a

nd i

nco

fina

ncin

g tr

ansa

c-ti

ons

of t

he E

BR

D i

sex

empt

ed.

No

spec

ific

gui

danc

e.

No

On

a se

lect

ive

basi

s,

No

som

e lo

ans

wit

h su

b-pa

rtic

ipat

ion

are

excl

uded

for

pro

visi

on-

ing

purp

oses

.

Cas

e by

cas

e.9

Yes

9

No

spec

ific

gui

danc

e.

No

Som

e co

fina

ncin

g Y

escl

aim

s w

ith

cert

ain

mul

tila

tera

l an

dre

gion

al d

evel

opm

ent

bank

s ex

clud

ed.

Cas

e by

cas

e.

Yes

Ger

man

y

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion

Uni

ted

Kin

gdom

Uni

ted

Stat

es

Indi

cati

ve:

Ban

k of

Eng

land

guid

elin

e; 5

-100

perc

ent

on a

ppro

xi-

mat

ely

55 c

ount

ries

.11

Indi

cati

ve/M

anda

tory

:O

n lo

ans

that

are

eva

lu-

ated

val

ue i

mpa

ired

.

The

mat

rix

allo

ws

for

regu

lar

re-a

sses

s-m

ent,

whi

ch c

an l

ead

to l

ower

rec

om-

men

ded

prov

isio

ning

rang

e.

The

IC

ER

C m

eets

thre

e ti

mes

a y

ear

tore

view

cou

ntry

ran

k-in

gs a

nd s

tatu

s of

valu

e-im

pair

edco

untr

ies.

49-8

0 pe

rcen

t

24-6

0 pe

rcen

t

If a

cre

dit

is c

onsi

dere

d to

have

a h

ighe

r pr

obab

ilit

yof

rep

aym

ent,

nota

bly

inth

e ca

se o

f sh

ort-

term

cred

its

and

inte

rban

kcl

aim

s, t

hese

are

tre

ated

mor

e fa

vora

bly

or c

an b

eex

clud

ed a

ltog

ethe

r fr

omth

e ca

lcul

ated

exp

osur

eba

se.

Pro

visi

onin

g is

req

uire

don

all

loan

s ex

cept

perf

orm

ing

trad

e an

din

terb

ank

cred

its.

Cas

e by

cas

e.

Col

late

rali

zed

prin

-ci

pal

is f

acto

red

into

calc

ulat

ion

for

rese

rve

requ

irem

ent.

Som

e lo

ans

wit

hsu

bpar

tici

pati

on a

reex

clud

ed f

or p

rovi

sion

-in

g pu

rpos

es.

Yes

Con

side

red

on a

cas

e-by

-cas

e ba

sis.

Yes

Sou

rces

: N

atio

nal

Aut

hori

ties

; pr

ess

repo

rts;

and

Wor

ld B

ank

Tec

hnic

al P

aper

No.

158

.N

ote:

IC

ER

C =

Int

erag

ency

Cou

ntry

Exp

osur

e R

evie

w C

omm

itte

e; I

FC

= I

nter

nati

onal

Fin

ance

Cor

pora

tion

; E

BR

D =

Eur

opea

n B

ank

for

Rec

onst

ruct

ion

and

Dev

elop

men

t.1In

per

cent

of

rele

vant

exp

osur

e; n

umbe

rs i

ndic

ate

rang

e fo

r m

ajor

ban

ks.

2Ind

icat

es u

nder

wha

t ci

rcum

stan

ces

the

asse

ssm

ent

of e

xpos

ure

is a

djus

ted

for

coll

ater

aliz

ed c

laim

s fo

r pr

ovis

ioni

ng p

urpo

ses.

3Ind

icat

es w

hich

reg

ulat

ory

auth

orit

ies

asse

ss t

he e

xpos

ure

base

by

indi

vidu

al c

ount

ry p

erfo

rman

ce.

4The

tim

e pe

riod

can

be

redu

ced

to t

wo

year

s if

the

cou

ntry

can

dem

onst

rate

an

abil

ity

to r

aise

new

fun

ds o

n a

volu

ntar

y un

secu

red

basi

s on

the

int

erna

tion

al c

apit

al m

arke

ts.

5Bas

ed o

n en

d-of

-199

3 da

ta.

6A o

ne-f

or-o

ne a

djus

tmen

t is

mad

e (i

.e.,

if c

olla

tera

l on

ly p

arti

ally

cov

ers

asse

t, th

e un

cove

red

port

ion

is f

acto

red

into

the

cal

cula

tion

for

tot

al e

xpos

ure

requ

irin

g pr

ovis

ioni

ng).

7Man

dato

ry t

arge

t is

set

by

indu

stry

ave

rage

of

prev

ious

fis

cal

year

.8A

dequ

acy

judg

ed a

gain

st i

ndus

try

aver

age.

9Ban

ks i

ndiv

idua

lly

dete

rmin

e th

e re

quir

emen

t fo

r pr

ovis

ions

in

liai

son

wit

h th

eir

exte

rnal

aud

itor

s.

In t

his

cont

ext,

allo

wan

ce c

an b

e m

ade

by c

redi

t ty

pe a

nd b

y co

untr

y ri

sk.

10U

ntil

Mar

ch 1

991,

the

25 p

erce

nt l

evel

rep

rese

nted

a m

axim

um

stat

utor

y ca

p.

Alt

houg

h th

is i

s no

lon

ger

the

case

, th

e le

vel

is s

et t

o pr

ovid

e an

ind

icat

ive

guid

elin

e.11

The

Ban

k of

Eng

land

doe

s no

t in

stru

ct p

rovi

sion

ing

agai

nst

a se

t lis

t of

cou

ntri

es;

this

is

left

up

to i

ndiv

idua

l ba

nks

to d

eter

min

e us

ing

the

Ban

k's

mat

rix

crit

eria

.

©In

tern

atio

nal M

onet

ary

Fund

. Not

for R

edis

tribu

tion


Table A21. Net Foreign Direct Investment Flows to Developing Countries(In billions of U.S. dollars)

Developing countries1

AfricaAlgeriaBotswanaCameroonGabonMoroccoNigeriaSouth AfricaTunisiaOther

AsiaChinaIndiaIndonesiaKoreaMalaysiaMyanmarPakistanPapua New GuineaPhilippinesSingaporeSri LankaThailandOther

EuropeU.S.S.R., formerCzechoslovakia, formerHungaryPolandRomaniaTurkeyOther

Latin AmericaArgentinaBoliviaBrazilChileColombiaCosta RicaDominican RepublicEcuadorGuatemalaJamaicaMexicoParaguayPeruTrinidad and TobagoVenezuelaOther

Middle EastEgyptUnited Arab EmiratesYemen, Republic ofOther

1988

19.2

1.1—

—0.40.10.40.10.1—

10.52.30.30.60.70.7—

0.20.11.03.5—1.0—

0.90.5

—

0.4—

6.91.1

2.90.10.20.10.10.10.1—1.7——

0.10.10.2

-0.21.10.2

-0.3-1.2

1989

21.5

2.8—0.1——0.22.4

-0.40.10.2

10.72.60.30.70.51.7—0.20.20.81.9—1.70.1

0.9-0.3

0.30.2

0.70.1

6.41.0

0.70.30.50.10.20.10.10.12.6—

0.10.10.20.3

0.71.20.2

-0.2-0.5

1990

23.5

1.2—0.1—

-0.10.20.6

-0.10.20.3

13.82.70.41.2

-0.12.30.20.20.10.53.9—2.20.1

0.8-0.7

0.20.3

0.70.3

7.11.9

0.20.60.50.10.10.10.10.12.50.1—

0.10.50.2

0.60.70.2

-0.2-0.1

1991

33.8

1.2-0.1

—-0.2

0.40.6—

0.20.3

15.43.70.21.5

-0.24.00.20.30.20.73.2—1.40.1

3.2

0.61.50.1

0.80.2

10.92.40.1—0.50.40.20.10.10.10.14.80.10.10.21.60.3

3.10.30.20.32.3

1992

44.4

1.1—0.10.1—0.50.8

-0.90.20.2

20.67.10.31.7

-0.34.50.10.30.20.74.3—1.50.1

5.11.11.11.50.30.10.80.2

14.24.20.11.30.60.70.20.20.10.10.15.40.10.10.20.50.3

3.40.40.20.72.1

Est.

1993

55.5

1.50.10.10.1

-0.30.50.6—0.20.2

30.317.00.62.0

-0.34.30.30.30.10.64.00.11.20.1

6.71.80.92.30.60.10.90.1

12.83.30.1—1.40.80.10.10.50.10.14.90.10.50.30.10.3

4.50.50.20.73.0

Est.

1991-93

134.0

3.8—0.20.2

-0.51.42.0

-0.90.60.7

66.327.8

1.15.2

-0.812.80.60.90.52.0

11.50.14.10.3

15.02.92.65.31.00.22.50.5

37.99.90.31.32.51.90.50.40.70.30.3

15.10.30.70.72.20.9

11.01.20.61.77.4

Source: IMF, World Economic Outlook.1 Taiwan Province of China is excluded from this group because it has become a significant provider of foreign direct investment in recent

years.

80


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