Third World debt is still growing.

• Author: Gardner, Gary

Developing country debt is estimated to have grown to over $1.8 trillion last year, up from $1.77 trillion in 1993. During the past decade, much of this debt has been restructured--renegotiated on terms more favorable to debtor countries. Some 80 percent of the funds owed to commercial banks, as well as a much smaller share of loans from governments and multilateral institutions, has now been restructured. The trend has led some analysts to declare the debt crisis over, at least for the private banks. But the poorest nations have yet to see much relief. Their debt service payments still eat up a substantial percentage of their export revenues--some 15 to 19 percent, depending upon the measurements used. The ratio typical of the era before the crisis began in 1982 was on the order of 10 to 12 percent.

The worst debt today is that of sub-Saharan Africa, excluding South Africa. Collectively, the region's debt amounts to $180 billion, three times the 1980 total, and 10 percent higher than its entire output of goods and services. Debt service payments come to $10 billion annually, about four times what the region spends on health and education combined. The burden is choking off economic development over much of the continent.

Eastern Europe and the countries of the former Soviet Union are also heavily indebted, but the picture varies considerably from one country to another. The region's total debt rose from 161 percent of export earnings in 1986 to an estimated 291 percent last year. Russia owes over $80 billion, and the country is hard pressed to meet its obligations: interest payments in 1994 were budgeted at less than 15 percent of interest due. Poland, on the other hand, had 40 percent of its debt forgiven in a restructuring agreement last year. Half of Bulgaria's debt was forgiven in 1993.

In Latin America, restructuring has eased the burdens of three major borrowers--Mexico, Argentina, and Brazil. Peru is the region's last remaining country with significant unrestructured debt. Peru's debt currently amounts to $26 billion.

Restructuring has brought some new actors onto the scene--and changed the roles of established players. After shedding much of the "old," high-risk debt of the 1980s, the commercial banks are moving aggressively into lucrative east Asian markets, and into private sector lending in Latin America. This more selective lending has allowed American banks, for instance, to post a 17 percent increase in Third World loans over...