Policy and Performance Links between LDC Debtors and Industrial Nations

IN 1984 spokesmen for heavily indebted developing nations complained about the sharp interest rate increases that had come in the wake of the U.S. economic recovery. Emphasizing that the U.S. recovery had also spilled over into record export growth rates for developing countries, President Reagan commented on the trade-offs in the following terms: We sometimes hear complaints about U.S. interest rates, particularly by debtor nations, which are legitimately concerned about the additional debt service costs they must bear. But not enough mention is made of trade and the far greater benefits developing countries receive from renewed economic growth and open market policies of the United States. For the U.S. alone, imports from the non-Opec LDC's during the first seven months of this year increased by more than $12 billion over the amount during the same period last year. By comparison, a 1 percent increase in interest rates would increase net interest payments by the non-Opec LDC's by only $2.5 billion. ' This paper investigates the impact of macroeconomic developments in the industrialized nations on LDCs, in part to assess such trade-offs as that between increased LDC exports and higher interest rates resulting from U.S. growth. Such assessments will help in understanding the sharply divergent economic performance of LDCs and in judging whether the current debt crisis can be expected to disappear through the