BPEA | 1981 No. 2

The Debt of Developing Countries: Another Look

1981, No. 2

THE purpose of this report is to reexamine the debt of developing countries
in the light of the second “oil shock.” In 1977, when the dollar price
of OPEC oil was less than $13 a barrel, I undertook such an exercise
and, on the basis of data through 1975 or 1976, came to optimistic conclusions
about the capacity of nonoil developing countries to continue
to incur debt.1 As it turned out, the supply of funds available to those
developing countries that are major borrowers from banks remained
ample at low real interest rates through 1978, when the OPEC surplus
disappeared. In fact, the contraction of the OPEC surplus in the years
immediately following the first OPEC price shock had its counterpart not
in a reduction of the aggregate current account deficit of nonoil developing
countries, as I expected in 1977, but in a shift to surplus by the industrial
countries as a group.