Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

129. Briefing Paper Prepared by the Agency for International Development¹

OECD/TP–18

Washington, November 16, 1966.

THE DEBT PROBLEM

Talking Points

1. We feel that DAC should give priority attention to the problem of debt which will have an important bearing on over-all aid requirements, terms policies, and development.

2. We feel that the work done by the DAC, including the studies on the growth of external debt, consolidation, and the Survey of Debt Situations,² has contributed importantly to members’ understanding of the seriousness of the debt problem.

3. We feel DAC with the assistance of IMF should continue its work by examination of specific countries’ debt situations so as to inform members more fully of the structure of debt as well as available creditor options.

4. We feel that the Working Party should look especially at the problem of supplier’s credits, particularly in the light of the study now being completed by the IBRD.

5. We feel that the proposed new expanded reporting system, developed jointly by IBRD and DAC, will contribute greatly to knowledge of debt and enable DAC members to anticipate and to deal more effectively with debt problems in the future.

Background

A recent IBRD report estimates external medium and long-term public debt (over one year) of 96 developing countries to be approximately $37 billion at the end of 1965.³ This represents a dramatic increase from $33 billion in 1964, $29 billion in 1963, and $10 billion in 1955. The estimated service payments on this public debt for calendar year 1965 amount to $3.3 billion. These figures do not include transactions of the IMF, private non-guaranteed debt or certain other transactions. In the past several years, debt service of an increasing number of LDC’s has reached such levels that they have been unable to maintain payments unless debt were refinanced or rescheduled.

The Development Assistance Committee in July 1964 decided to broaden the terms of reference of the then existing Working Party on Terms of Aid to include consideration of the debt problems of LDC’s and the role of suppliers’ credits and other short-term transfers.⁴ As a first step, the Working Party addressed itself to the preparation of studies on the growth of external debt and debt service liabilities of developing countries (DAC(65)17, 1st Rev),⁵ and to debt consolidation problems (DAC(65)24).⁶ Within the Working Party itself, a great deal of discussion was given over to the problem of advance identification of countries approaching debt crises and of possible creditor options in either preventing or dealing with these crises. To support the Working Party discussion, the Secretariat prepared a Survey of Debt Situations (DAC/FA(66)5) which includes as Part I a classification of LDC’s according to the nature and urgency of their debt servicing problems and, as Part II, statistical data sheets on 66 LDC’s. The Survey incorporates data available from a variety of sources including multilateral lenders and is, in effect, an effort to bring together the best available indicators of the seriousness of debt in each country.

The efforts of the Working Party thus far have resulted in several positive achievements. First, they have led to the study, preparation and dissemination of useful information on the problem of debt in general and in specific LDC’s. A second accomplishment has been the identification of requirements for additional information on debt which led to the formulation of a joint DAC/IRBD proposal for an expanded debt reporting system. The proposed system, which has been approved by DAC and submitted to the OECD Council on October 20, 1966, calls for detailed reporting on each new public transaction of over one year maturity and each private guaranteed transaction of over five years, to begin effective January 1, 1967. In addition, it calls for semi-annual reporting on the status of all transactions. The kind of information which will be elicited once this system is put into effect will lead to a clearer and more realistic understanding of debt in relation to aid requirements, term policies, consolidation and rescheduling.

There is agreement that the debt must continue to be given priority consideration. Recently, the Secretariat explored with the IMF and IBRD the possibilities of closer cooperation in developing the necessary statistical data to improve the survey and support further work on debt. The results of these consultations are to be reported to the next meeting of the Working Party in late November. While the IMF and IBRD are prepared to be of increased assistance, the Secretariat will most likely have to continue to study and provide information on debt to support discussions in DAC.

We have expressed to USOECD our view that the most profitable area of work in the future would be in the area of specific country reviews. We have stated that the purpose of such reviews would be to inform members more fully of development, structure and problems of debt as well as available creditor options. We have emphasized that the purpose of further work would not be to negotiate settlements. We feel that detailed debt study would assist the DAC members in refining terms of aid targets and criteria for lending. We have suggested a number of countries for possible consideration in DAC and have encouraged other members to come forward with suggestions of their own.

1. Source: Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Meetings—OECD Ministerial November 24–25, 1966. Limited Official Use. Drafted by Kramish (AID/PC/FWA) and cleared by Saxe (AA/PC), Albert W. Whiting (E) in draft, and Albrecht and Phillips (EUR/RPE). The paper was one of several briefing papers prepared for the upcoming OECD Ministerial Meeting in Paris. Regarding this meeting, see Document 130.
2. Identified below as DAC/FA(66)5; not found.
3. This report has not been found.
4. See Documents 90 and 92.
5. See footnote 11, Document 110.
6. “Economic and Institutional Problems of Debt Consolidation,” July 9, 1965. (Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, DAC—Ministerial Meeting—Paris, July, 1965)