Created: 5/29/1980

OCR scan of the original document, errors are possible



LU Majority io Ec

onths havedcii'tif gap in economic performances betweenKthat export oil and those that do not. This has been especially pointed in the spreads between their respective current account growth indicators and their high and rising inflation rates. fJJH

A key turning point came innd marked deterioration continuedor theDCs in ibe rion-oil^xooninghe results were readily apparent in the standard indicators:

snot oil market to meet their oil needs, and their import bills rose sharply. Unsettled economicin the developed countries and revisedevelopment plans also prevented many LDCs from expanding exports as rapidly as in Ihe past. The return of poor crop conditions in thcSahcl, tbe Indian subcontinent, and parts of Latin Americaapped growth rates there. Faced with these factors, severaland South Korea standalready protected sharp changes in their economic policies before the official OPEC oil pnees look off in9

real rale of growth of GNPercentage points. For the grouphose, thisedracercentxcluding the volatile Indian and Aigentinc economies, ih- comparable figuresercent, respectively.'

;The combined iafUtioa rate roseoints. Overall, this meani an increase from ii percent

. ) toowever, removing hyperinfiated Argentina and Brazil, therates wereercent anderceni.

deficit in the current account roseillion, as the net increase in the oil bill alone ran about SI0 billic



The principal element in this slide from ihe fairlyeriod was the new oil crisis. Beginning with Ihc Iranian production cutback inany LDCs were sent scurrying onto ihc

By sad large. *be economics of ihe aon-OPEC LDCs are in for rough salting again this year. Farther hikes in oil pricesenerally economic performance in the OECD countries, and slowed OPEC development programs will again afTect most of ihe group- Wc project thai:

Their current account deficit will soar someillion touhon.

Excluding India and Argentina. Ibeir real growth will fall nearly another percentage point

Recent high inflation rates will remain essentially lhe same despite the lalloff in

The course of cvenis1 iscritical.LDCs experience another sharpin their terms jf trade they could he back lo the conditionsheir worst overall economic performance in lhe past quarter centary. aad would have lo constrain imports even morrespective ofear, the clear signals are that LDC ecoocaroc growth rata will forunse rcsnain well below ibe high ratesercent) of. TV* bixn hood o( ro-ruj oH prices, aad tbeabsetsoeoTam/nsajor energy altcrulivcs to oil in most LDCa augur generally slower gains in per capita incomes through much of Ihe Third World during. For an increasing number ofhs

# Uwf isur>


Sub-Saharan Africa and Ihe Caribbeansetback will amplify serious and persistent problcmi with rapid urbanization and declining food self-sufficiency

I-DCs: Current Account Deficits


; The Owl lookO

Even the mou stow-reacting LDC policymakers now grasp0 will be an especially difficult year. The single factor in the overall currenteterioration among non-oil-esporting LDCs willihe increase ia their oil import bills. Panicular growth and inflation rates will largely depend onapacities of individual LDCs to accommodate this continued disturbance. For many LDCs, the broad

strategy will be to <a) bold ibc volume ofonstant, (b) take whatever import growth is possible iu capital goods and raw materials, (c) run down exchange reserves and real inventories, andccept slower uonomk growth. Indeed, features of this strategy ere already evident in earlyreturns and policy announcement*the Third World.fajjjj

ThrCuftM Aceommt. Higher oil bills, the continued soft demand in OECD markets, aad steady risesthe prices of importsrillion slide in the current account of the aon-ou-esporting LDCs. The . Urges) component of this figure will be Iheillion addition to the combined oil import nil of *, India, the ttilippinca. South Korea,i Taiwan. Many of Ihe middle-income, non-oil-ex-

orting LDCs will be able to muddleithout radically changing their pattern*ng or debt repayment: ihcy nonctheleu will havetampdown on domestic spending and nonoilorts to meet oil bills and debt service payments. The press of these problem* will be especially strong in countries like those in Central America, where there Is some development of domestic industry but virtually all fuels are imported. BJJJ


countries, payments problems will tend lo beas they comeead. Many, like Bolivia and Sudan, will be forced by international knders to put the clamps onrerequisite to needed debt rescheduling lor Jamaica, forced auisicrity will

continue as the government seeks to reschedule its entire stock of debt. The prospect of scriou* political problems may makeeluctant to


Finanftnt0ombined current account dciirit ofillionerious financing challenge to ihe non-OPEC LDCs If they try io maintain their9 positionUdirfforeign exchange lo finance four months of imports, they would have to muster closeiDioo on the capital account beyond likely foreign pnvale investment and programed foreign aid. Some of ihis will come from the IMF and other internationalarge share will have to be uivered by privateost likely. Ihe outcome will be some reduction in foreign eichangc reserve/import ratios,eant




.<llj I

on avenge spreads andalei for funds in private capital markets. The implication ja that the already growing- debt-service ratios jf thethese in the middle- incomespurt op again over the next several

Although we do notidespread problem in securing private finanorg this year, concernhigh among inter national financial cireles about the large accruing debts of someen among some of the smaller middle-incomedebt levels are complicating the problem* of financing the current account deficit For example, bankers are worried about th; ability of the Philrp-ptnes to its debt in light of the limited potential for expanding export earning in the short run. Recent turmoil in Central America, classically an attractive area for private lending, also is addingankers' -

The private financial markets will not. ofake up all of the funding problems of tbe LDCs. LDCs that are simply comickred bad risks because of post problems in meeting debt payments or that hive done little prior borrowing on the private markets may encounter even more serious financing problems this year. Countries that have bad no experience on private markets becausearrow export base or other reasons will continue to be dependent upon the largcsx of developed and OPFC countries, neither of which can be counted on for substantial aid increases except for political reasons, m

Output Growth Overall, thex portingIndia and Arcentinaprobabltrop ofercentage point in weighted GNP growth toercentO.LDCs like Brazil, South Korea, andill have the most difficulty sustaining previous growth rates. Tovarying degrees, their gmwth wii: be held back by laree current account deficits that restrain imports, inflation-fighting policies, and the


- recoveryhiMhlliMP'^iMwviiVII

PO i

faff in export demand. Some of theLDCs will turn in aperformance despite adverse conditionsworld economy because of favorable(Chile) or expected agricultural(Bangladeshew of theJ

Almost half of the non-oil-LDCs will experience growth less Ihan the weighted group average. The poor performers run the gamut from the very poor

(Jamaica.nd from the totally oil-deficient (Madagascar) to some small oil exporters (Angola. Bolivia.she Central American LDCs. usually among the faster growing

Seem tra* h


; I



I.IK "atrowth Prrformoncnl-IWa


- -




stood out near the bottom of irve lot because of their heavy oil-import dependence, bat-ance-of-payment* problems, and dorncst'c political disrupt iond-^H

Inflation. The inflation outlook isteadying of rales after last year's sharp runup. The non-oil-LDCshole will probably show somefromo aboutercent thisarge

chunk of that improvement, however, will come from two of the bigger LDCs; with hyperinflaieell and Argentina taken out, we expect: slight octenorairon. fromoercent. |

Price increases for both petroleum and nonoil imports will continue to hurt most of the non-oil-esporting LDCs as Ihey work theirIhe domestic economies These factors will again make


LDCk Aggregate Inflation Rates'

publicrobable exceptionto fight inflation bypolicy and improving government

worse for thoseas Jamaica, Kenya, Sudan, andhave been etpericncinj; serious stabilization proMcms for the last few years. Lifting of price controls on basic consumer items or the removal of subsidies will, in the short run. be reflected in non-oil-esporting LDCs such as Panama, Uruguay, Guyana, and Senegal. Expected high levels of deficit spending will add to the inflation woes of Bolivia, Guyana. Pakistan, and most of the Sub-Saharan African LDCtJ^

Rising revenues from commodity exports anddeficit spending will fuel inflation in most oil-eaporting non-OPEC LDCs. In Egypt, thewill confirtfc lo subsidize food prices with inflationary budget deficits. In Malaysia, inflation will riseesult of sharp increases in consumption


I DCs are running out of policy options that can simultaneously accommodate soaring oil prices and programs for economic growth and development. If official oil pricesar arc held to an averageer barrel Ibe resulting small improvemente LDC terms of trade would allow policymakers to put asideime the overriding problem ofhe oil bill and instead focus on financial and resource allocation policies that could stimulate economic growth. How much breathing space they actually enjoy, however, will depend not only on oil prices but on the rate of economic recovery in lhe major industrial countries which willlrong influence on LDC export performance. Al the moment, most forecasts of OECD growthQret<comirigirwrca5inglypcssimistic.M

trong revival in OECD growth and nored oil price hikes, countries such as Hongouth Kores. Taiwan. Brazil, and Singapore would be able lo use rebounding export growth to partly offset higher oil bills. Improved export performance could be enough to push the non-oil-exporting LDC aggregate growth rateercent for the first lime7 and shaveoercentage points off the inflation rate of most of them. Even in this case, exportersarrow range of price-stable primary products, such as Costa Rica. Ghana. Tanzania, Zaire, and Zambia, would sec little, if any. improvement in growth rates. Continuedand regional poiilical turmoil will also take its toll. csTjeciallyinparts or Africa and the Caribbean basin H

If oil prices were to rise in real terms byC percent next year Ihe non-cil-exporting LDCs would suffer another serious economic blow. Growth rates would again turn inercent, and inflation would remain high. Advanced LDC manufacturesand primary goods producers alike would be mt



WOiv-Fstorting UX.



ontinued ihimp in major markets and ibc - elTeci of oil pricea on inflation and current ucoounu balances. Wnh mint real oil prices and poor economic growthnternational bunkers ' would by cbary of lending to cover Ihe LDCs irade-i' rcliteddcbt and even the most aedilweethvl could run into financing difficulties. The non-oil

esporting LDCs in ihe best positionurvive suchnching Argentina andnd those thaiwould make littleprogress in any.such as Ghana. Jamaica, aad


Original document.

Comment about this article or add new information about this topic: