Improving creditworthiness of developing countries

Description

Improving the creditworthiness of developing countries involves implementing sound fiscal policies, enhancing transparency, and strengthening legal and financial institutions to reduce investment risks. This strategy aims to attract international capital, lower borrowing costs, and foster sustainable economic growth. Key actions include improving debt management, ensuring reliable financial reporting, and promoting stable governance, thereby addressing issues such as high default risk, limited access to credit, and vulnerability to external economic shocks.

Context

The end of the 1980s was a period of transition for many developing countries. During that time, about two thirds of the debt of developing countries had to be rolled over or amortized. Constructive and collaborative actions were undertaken by debtors, creditors, and international agencies with the objective of accelerating the return to creditworthiness of countries pursuing sound economic policies, especially when they had short- to medium-term debt-servicing requirements.

Claim

The most important objective in the solution to the debt problem, other than enabling debtor countries to allocate more resources to investment and consumption, is to strengthen their creditworthiness, thus eventually permitting a resumption of voluntary commercial lending. Debtors and creditors alike stand to gain from such an approach. As creditworthiness is restored, the secondary-market discounts on outstanding debt - which exceed 50% for many of the highly indebted countries - would drop. Moreover the debtors, improving growth prospects would enable them to import more from the industrial countries. That would assist in the global correction of external imbalances.