Financial flows and the developing countries 1 (2)

21976 Vol. 1 No.2 -FINANCIAL F-LOWS AND THE -DEVELOPIN h [WOU-NTRIES A WORLD BANK QUARTERLY February 1994 FIE COPY  CO41 ENTS AND SUMMARY INTERNATIONAL LENDING EQUITY PORTFOLIO AND CAPITAL MARKETS AND FOREIGN DIRECT INVESTMENT * DEVELOPING-COUNTRY BORROWING PAGE 4 m EMERGING STOCK MARKETS PAGE 12 Developing countries raised $18.6 billion The IFC's dollar-based composite price index through bonds and loans in the third quarter rose an impressive 37 percent in the fourth of 1993, up 16 percent on the second quar- quarter, led by especially strong Asian stock ter. Bond issues surged to a record $19.7 bil- markets. Foreign investors, particularly US lion in the last quarter of 1993, and to $58 mutual fund managers, seeking high yields billion for the whole of 1993. Spreads contin- fueled prices and trading volumes in some ued to tighten, even as maturities lengthened. markets. Mexico's national oil company, Pemex, issued the first 30-year bond by a developing coun- try. Emerging-market borrowers were active in AND ERITIES PAGEU1S the eurobond and Yankee markets, and Latin American borrowers tapped the yen market The stream of Asian euroconvertibles contin- with five issues. The Congo issued its first euro- ues, thanks to strong foreign investor demand bond, securitized by oil receivables. sparked by robust equity markets and local firms' capital raising. Asian funds are popu- lar with investors, and the first Russian equity * G;LOBAL BORROWING PAGE 8 fnwaluchd investment fund was launched. In the third quarter of 1993, $202.1 billion was raised in international capital markets as in- terest rates fell to record lows. At $116.3 bil- * FOREIGN DIRECT INVESTMENT lion, bond issues were up 9 percent over the AND PRIVATIZATION PAGE 16 second quarter. Lending slowed, but spreads A survey of Japanese firms shows an increas- on international bank loans tightened for the ing number of local firms planning overseas first time in years. Equity issues continued to investment. The elimination of FDI restric- increase. tions under NAFTA and the reduction of tar- iff and nontariff barriers are expected to in- crease Mexico's attractiveness to investors. * COMMERCIAL BANK CLAIMS PAGE 9 In the second quarter of 1993, cross-border claims of BIS reporting banks (including lo- SECONDARY MARKETS cal foreign currency lending) fell by $116.3 FOR DEVELOPING- billion, a near-record decline. Fourth-quarter COUNTRY DEBT PAGE 17 lending to developing countries slowed on lower borrowing in Asia. A widening base of investors seeking high returns, as well as favorable developments- such as the passage of NAFTA in the US Con- gress-buoyed secondary market debt prices. Rating activity is increasing as more emerging- Bulgaria's debt deal took the market by sur- country borrowers enter international capital prise, and fueled the increase in pre-Brady and markets. In the fourth quarter, Moody's up- exotic debt prices. In the fourth quarter, Latin graded some Chinese financial institutions, eurobonds outperformed both the US stock and Uruguay received a first-time rating. and the US government bond markets. 2 FINANCIAL FLOWS AND THE DEVELOPING COUNTRIES  CONTENTS AND SUMMARY OFFICIAL FLOWS: quarter of 1993. Struggling with portfolio MULTILATERAL AND problems,Japanese banks took the unusual BILATERAL step of writing off bad loans. 9 MULTILATERAL FLOWS PAGE 19 An enlargedEnhanced StructuralAdjustment FINANCIAL B RI EF: Facility (the IMF's concessional lending facil- FINANCING FOR EI G N ity) is expected to be operational by the end DIRECT INVESTMENT PAGE 21 of February 1994. The World Bank's largest project loan ($610 million to rehabilitate Foreign direct investment flows to developing Russia's oil sector) was approved for disburse- countries have reached unprecedented highs, ment. The Multilateral Investment Guarantee but the method of financing these investments Agency doubled the investment insurance is changing. Equity investments have gained coverage it provides. in importance, while the share of reinvested earnings in total FDI has fallen. * BILATERAL ODA AND EXPORT eoIternatbkforRi CREDITS PAGE 19 STATISTICAL APPENDIX In the fourth quarter of 1993, the Export- *o T DEBT .,, TOTAL-EXTERNAL DEBT PAGE 24 Import Bank of Japan approved about $650 million in new untied loans and guarantees. a AGGREGATE NET LONG-TERM RESOURCE FLOWS PAGE 25 M BANK AND TRADE-RELATED DEBT RELIEF UPDATE NONBANK CLAIMS PAGE 26 4 * COMMERCIAL BANK CLAIMS OCX, * OFFICIAL CREDITORS PAGE 19 UPAGE 27 ' ON DEVELOPING COUNTRIES I&E2 Y 5,>' In the fourth quarter, Paris Club creditors * COMMERCIAL BANK CLAIMS rescheduled Viet Nam's debt service arrears ON DEVELOPING COUNTRIES, on enhancedToronto terms. InJanuary 1994, BY COUNTRY OF ORIGIN PAGE 28 Kenya's debt service arrears were also resched- * MATURITIES OF BANK CLAIMS uled. ON DEVELOPING COUNTRIES PAGE 32 * FUNDS RAISED ON INTER- * COMMERCIAL CREDITORS PAGE 20 NATIONAL CAPITAL MARKETS PAGE 33 In the fourth quarter of 1993, Bulgaria PRICES PAGE 34 reached an agreement in principle on restruc- turing commercial bank debt, and Jordan I NET FOREIGN DIRECT INVESTMENT FLOWS concluded a Brady-style debt reduction agree- TO DEVELOPING COUNTRIES PAGE 35 ment.