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PASTOR GENERAL'S REPORT, DECEMBER 31, 1982
PAGE 7
poorest countries simply could not sell enough goods to make up for in
creased oil costs. They had to go to the financial markets to cover yearly
balance-of-payments shortfalls. Secondly, the enormous revenues generated
by the oil producers such as Saudi Arabia, had to go someplace. Most of the
surplus revenue went into Western banks, which simply became awash with
money. The banks had to invest this money somewhere in order to pay the
interest on the Arab deposits. Nations not originally thought to be the
best credit risks were aggressively sought. "We'll give you money to
finance your development schemes," etc.
Mexico was considered a hot prospect because of its newly discovered assets
of petroleum. This worked for a while--until the price of petroleum drop
ped and Mexico couldn't repay its debts. Some banks were left exposed be
cause they had violated their own principles of not lending more than 10% of
lendable capital to the same country.
(Some banks were 30% exposed to
Mexico--10% to the Mexican government directly, another 10%, say, to Pemex,
the nationalized oil company, and a third 10% to some other governmental
agency.)
The whole cycle is now endangered by another development. The soft oil
market, coupled with lower oil prices, means that the oil producers are
earning less and thus placing less money in Western banks. The banks, in
turn, are finding it difficult to cover their outstanding loans to Third
World debtor nations.
The NEW YORK TIMES in its December 6, 1982 edition paints this gloomy pic
ture of the world's economy:
MEXICO CITY, Dec. 3--The recession in the industrialized nations
has translated into increased economic hardship and new political
tensions across much of Asia, Africa and Latin America. Last
year, for example, the economies of the developing world grew by
an average of just six-tenths of one percent and, with population
growth racing ahead,� capita income fell for the first time in
1Q.
years.
"Zero growth in a country like Sweden is hardly a disaster," one
United Nations development economist said, "but in the third
world it means condemnation to perpetual poverty."
While the economic destiny of the third world will unavoidably be
determined by events far beyond their borders, many experts be
lieve that these countries will also shape the fate of the indus
trial powers. "In contrast to the Depression of the 1930s," a
United Nations economist sa1d-
,-"today there is g'""enu"'Ine worldwide
economic interdependence••••The recessions are feeding on each
other.•••The collapse of the third world will hurt the first
world's recovery."
The sharp increase in oil prices in 1979 pointed to serious
trouble for developing nations that are not oil producers. The
total current-account payment deficit for all third world coun
tries surged to $115 billion in 1981.
For a while, however, the surplus revenue of Arab oil exporters,
efficiently recycled through Western financial markets, provided
a credit cushion for countries with payments difficulties.•.•