World Bank Issues Annual Report : Third World Countries Seen Sliding Deeper Into Debt

Many people in debtor countries will slide deeper into poverty because of increasing Third World debt, which is due to reach a record $1.245 trillion by the end of the year, the World Bank predicted Monday.

In one of its gloomiest assessments since the debt crisis began in 1982, the World Bank said growing economic problems in industrial countries could worsen conditions in the Third World. A top official of the bank said social and political disruption could result.

Developing countries owe about $180 billion to American banks and hundreds of billions more to the U.S. government and international bodies in which it has a share. In a separate study released Monday, the Organization of Economic Cooperation and Development and the Bank for International Settlements said the combined foreign debt of 159 countries, including the major Third World debtors, rose 4% in the first half of 1987 to $927.9 billion from $892.2 billion at the end of 1986.

Jean Baneth, director of international economics for the World Bank, gave the bank’s annual report on Third World debt to reporters. The bank, chief source of international aid money, lends about $17 billion annually itself. It is owned by 152 governments, with the United States holding the biggest block of shares.

“The debt problem has not begun to near a solution,” Baneth said at a news conference. “By many measures, it has worsened.”

Development Stalled

Speaking of the poorest countries in Africa and heavily indebted countries elsewhere, the report says:

“The development process in these countries has stalled. The effects will be measured not simply in terms of falling average living standards but of the relapse into poverty of large sections of the population.”

Baneth added: “The decline is not only costly in human terms, notably for the poor who bear the brunt of it and who often find themselves at levels of income lower than a generation ago. It is also potentially disruptive, socially and politically. It threatens the survival of several new and fragile democracies and more broadly of regimes that eschew confrontation in favor of cooperation.”

The report estimates that in the last five years a net $85 billion, including $29 billion in 1987, flowed from poor countries to richer ones. One result has been what Baneth called “confrontation,” refusal by some debtors to pay interest due on loans.

Brazil, which has the biggest debt in the Third World, stopped payments to private creditors last February. Though it made one payment recently, it is still not up to date.

The report emphasizes the importance of the decline of investment in the Third World and calls this decline more serious than lower consumption and increased social and political problems. “Investment activity has collapsed,” it says. “In Africa . . . investment in 1987 was below what it was in the mid-1960s.”

Sees Dangers Ahead

Richard Feinberg, vice president of the Overseas Development Council, a frequent critic of the World Bank, praised the report’s emphasis on investment and the flow of money from poor to rich countries. “It’s a sober assessment of past frustrations and a somber warning of dangers ahead,” he said.

The World Bank estimated total Third World external debt at $1.19 trillion at the end of last year.

EIGHT MAJOR DEBTORS AND THEIR BURDENS

Debt outstanding Debt service Debt ratio Country (in billions) (in billions) (% of exports) Brazil $114.5 $61.4 30.2% Mexico 105.0 44.9 32.7 Argentina 49.4 23.7 33.1 Venezuela 33.9 15.9 22.5 Philippines 29.0 12.0 19.0 Nigeria 27.0 12.2 11.6 Yugoslavia 21.8 10.2 7.7 Chile 20.5 9.8 29.5

Source: World Bank