INVESTMENT IN KEY LDC DEBTORS: STRUGGLING TO REGAIN LOST GROUND

Document Type: 
Collection: 
Document Number (FOIA) /ESDN (CREST): 
CIA-RDP97R00694R000500150001-9
Release Decision: 
RIPPUB
Original Classification: 
C
Document Page Count: 
42
Document Creation Date: 
December 22, 2016
Document Release Date: 
December 14, 2010
Sequence Number: 
1
Case Number: 
Publication Date: 
August 1, 1985
Content Type: 
REPORT
File: 
AttachmentSize
PDF icon CIA-RDP97R00694R000500150001-9.pdf1.76 MB
Body: 
Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Directorate of Intelligence To Regain Lost Ground Investment in Key LDC Debtors: Struggling Confidential Confidential GI 85-10196 August 1985 copy 3 3 7 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 m, Intelligence Investment in Key LDC Debtors: Struggling To Regain Lost Ground This paper was prepared b~ [ the Office of Global Issues. Comments and queries are welcome and may be directed to the Chief, Economics Division, OGI Confidential G/ 85-10196 August 1985 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Investment in Key LDC Debtors: Struggling To Regain Lost Ground Key Judgments The high investment growth that powered the economies of the key LDC Information available debtors during the past two decades may be a thing of the past. The fallout as of 15 July 1985 from this dramatic shift in investment behavior will multiply the economic was used in this report. and political problems these countries will face during the next decade. In particular, slow investment growth is limiting, and will continue to limit, their economic recovery. Slow economic growth, in turn, will aggravate existing political and social tensions as it becomes clear that, even after four years of declining living standards, several more years of painful economic austerity will be necessary. Sluggish investment growth, which slows structural adjustment and the transmission of technology, will also place additional strain on the international financial system by jeopardiz- ing debtor compliance with IMF programs and eroding LDC trade competitiveness. After an unprecedented four-year plunge, investment in the key LDC debtors is beginning to recover. Even if this recovery can be sustained, we believe investment will grow at a historically slow rate during the next five years. Mexico should lead with investment growth averaging 4 to 6 percent annually. Investment growth in Brazil, Chile, Peru, the Philippines, and Venezuela should fall within the 2-to-5-percent range. In Argentina and Nigeria, investment probably will be sluggish-averaging 1- to 3-percent growth. Even if investment grows at the highest projected rate through 1989, only Venezuela, the Philippines, and Nigeria will regain the ground lost since the international financial crisis. In our view, three key factors underlie this lackluster investment perfor- mance-unattractive returns, financing difficulties, and political-economic uncertainty. While the expected returns from investment projects may rise as economic activity slowly picks up, returns should remain well below the levels enjoyed during the 1960s and 1970s. In addition, the high cost and limited availability of investment funds will put a damper on capital formation. Domestic savings are likely to remain depressed and access to foreign capital probably will not be fully restored. We also foresee no significant improvement in the underlying level of political-economic stability in these countries. Capital flight, spurred by political-economic uncertainty, will remain a major obstacle to investment growth. The level of uncertainty could fall marginally, however, if the course of economic adjustment becomes clearer Confidential GI 85-10196 August 1985 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential An investment recovery as weak as we predict could easily be derailed by economic and political shocks. In particular, deteriorating global economic conditions could slow investment growth dramatically. While an oil price slump may free some resources for investment in the oil importers, it would choke off investment growth in the oil exporters-Mexico, Venezuela, Nigeria, and Peru. A runup of interest rates would stifle investment in all eight countries; Venezuela and Nigeria, with lower interest-payment burdens, are somewhat less vulnerable. Because of their dependence on export earnings, a worldwide recession, or even rising protectionism, could also significantly reduce investment growth. The investment outlook for several countries-for example, Chile, Peru, and Argentina-would be downgraded considerably if the price of a key commodity should fall sharpl Investment is also highly sensitive to the general political and economic climate in the key LDC debtors. If political conditions deteriorate, investment growth could be significantly lower than our projections. During periods of political instability, investors find it impossible to gauge the future returns from projects and increased capital flight shrinks the pool of investment funds. In contrast, if these countries abandoned their current policies of economic intervention and regulation, a surge in economic activity would surely follow, powered by investment growth well above our projections. However, given the short-run economic and political costs, we believe significant economic policy reform is unlikely during the next five years Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential events in and US relations with these strategic LDCs This research paper is part of a Directorate of Intelligence research effort to assess the longer term effects of the LDC foreign debt crisis. It examines the dramatic shift in investment behavior that occurred in eight LDC debtors when they experienced severe international financial problems. Our investment outlook presents an estimate of each country's investment behavior during the next five years. These investment trends will play a major role in determining economic growth, the pace of structural adjustment, technological advancement, international financial positions, and compliance with IMF programs-factors that in turn affect political Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Key Judgments Financial Problems Alter Investment Trends Investment Plunges Investment Patterns Shift Key Factors Underlying the Investment Slump Investment Outlook 6 Limited Recovery 7 Individual Country Outlooks 9 Factors Affecting the Outlook 11 Implications 12 Slower Economic Growth 12 Slower Structural Adjustment 12 12 Appendixes Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Figure 1 Key LDC Debtors, 1985 Confidential Viii Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Investment in Key LDC Debtors: Struggling To Regain Lost Groundfl Investment in the key LDC debtors rose steadily during the decade before the international financial crisis as these countries committed an increasing share of their economic resources to expanding the productive capacity of their economies.' Powered by impressive investment growth, these LDCs made sig- nificant economic progress; their GDP, for example, grew at an average annual rate of less than 5.5 percent, during the turbulent 1971-80 period. Interna- tional financial problems in the early 1980s, however, caused a dramatic shift in investment behavior. This shift could have important effects on economic and political conditions in these LDCs over the longer term. Investment Plunges The recent international financial crisis shattered the decades-old trend of sustained investment growth in the key LDC debtors. Key indicators of their invest- ment performance have fallen off dramatically to the levels of the mid-1970s (figure 2). Last year, invest- ment in these countries was nearly $55 billion lower than in 1980, a decline of 30 percent. In contrast to the average annual growth rate of 7.3 percent achieved during the previous decade, investment fell by an average of 8.2 percent annually during the past four years. The contraction in investment was more severe than the general slump in economic activity; real GDP fell, on average, about 1 percent annually since 1980. Consequently, the share of GDP devoted to capital formation slipped 6 percentage points to 17.2 percent. ' Key LDC debtors include Argentina, Brazil, Chile, Mexico, Nigeria, Peru, the Philippines, and Venezuela. These developing countries, deemed of strategic interest to the United States, have encountered serious economic problems as a result of their large foreign debt. Unless otherwise indicated, investment refers to gross fixed investment investment in structures, machinery, and equip- ment. Data were drawn from a variety of open sources: publications of international organizations such as the United Nations, Interna- tional Monetary Fund, and World Bank; country handbooks pub- lished by central banks and other government entities; in-country discussions with bankers, businessmen, and government officials; and an external analysis contract. All growth rates were calculated from constant-dollar values. All dollar values are measured in 1980 US dollarsF_____1 Figure 2 Key LDC Debtors: Investment, 1970-84 Billion 1980 US S 250 Investment last year was well below 1980 levels in each key LDC debtor. In Argentina, investment plunged by a total of nearly 55 percent during the past four years (figure 4). The share of the country's GDP devoted to capital formation also dropped off, falling from 23 to 12 percent. The investment slump was severe, but less dramatic, in Chile, Brazil, Peru, and Mexico. At the end of last year, investment in these countries stood 25 to 35 percent below 1980 levels. Nigeria, the Philippines, and Venezuela fared some- what better, registering investment declines of only 10 percent. Recent trends indicate that the investment Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential According to economic theory, the linkage between investment and GDP runs in both directions (figure 3). A change in the level of either variable will affect the other Investment Affects GDP A change in investment spending affects GDP by altering the demand and supply of goods. An increase in investment, for example, raises GDP by first stimulating demand. Since investment is a component of demand, an increase in investment causes an equivalent rise in demand immediately. In addition, there will be ever-smaller "induced" increases in demand over the longer term as this demand increase filters through the economy. An increase in invest- ment also raises GDP by accelerating the expansion of productive capacity. An investment increase leads to faster growth in the economy's capital stock, which in turn leads to faster expansion of the economy's potential to produce goods over the longer term GDP Affects Investment Changes in GDP affect all three of the major determi- nants of investment. An increase in GDP, for exam- ple, stimulates investment spending by raising the expected returns from projects and increasing the availability of funds. Since investors view current demand as a key indicator offuture demand, GDP increases cause investors to revise upward their as- sessments offuture returns from projects. The supply of internally generated funds also increases when GDP increases because government tax receipts and firm profits rise. Rising economic activity does, how- ever, drive up the cost of projects, somewhat reducing the rise in investment spurred by changes in the other more important determinants downturn may have bottomed out in Brazil, Chile, Mexico, and Venezuela while it continues in Argenti- na, Nigeria, Peru, and the Philippines Investment Patterns Shift While shattering the trend of sustained investment growth, the international financial crisis also broke the pattern of investment in the key LDC debtors that evolved during the 1970s. During the past few years, government and industry reordered their investment- project priorities, the role of the public and foreign sectors declined, and the growing dependence on foreign capital to finance investment was broken. Government and Industry Reorder Priorities. Beset by international financial problems, the governments and industries of the key LDC debtors reordered their investment priorities. Governments shifted limited investment funds to projects having: favorable bal- ance-of-payments effects, high short-term economic payoffs, or high social/ political impact: given high priority. "Downstream investment" pro- jects that spur production utilizing locally produced inputs were also given special consideration. Brazil, for example, exploits its abundant hydroelectric power and ore deposits to produce metals for export. The governments also looked favorably on projects whose construction did not rely on imported goods and services. ? High Short-Term Economic Payoffs. Governments devoted more resources to smaller projects that yield identifiable economic benefits within one or two years. By leveraging past investment, an in- creasing share of the capital budget was allocated to the maintenance and expansion of existing facilities. Grandiose industrial projects that expanded into new areas with uncertain economic returns and long gestation periods were avoided. Gone too were the glamour projects-fancy international airports, ho- tels, and superhighways-with dubious economic value. ? Favorable Balance-of-Payments Effects. Projects that expand the country's capacity to produce export-oriented or import-substituting goods were Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Figure 3 Linkage Between Investment and GDP Expected returns from investment projects Cost availability of investment funds Figure 4 Key LDC Debtors: Total Change in Investment, 1981-84 ? High Social/Political Impact. Governments favored investment projects that lessened the political fall- out from harsh economic austerity. High-visibility projects boosting living standards, especially of the lower class, were given top priority. Projects with high employment content were especially desirable. In Chile, an emergency public-housing project, em- ploying 80,000 workers, was planned that would build an additional 30,000 homes in 1983. Invest- ment funds were also earmarked for small infra- structure projects that yield demonstrable improve- ments in health, education, communication, and transportation At the same time, private investment funds in the key LDC debtors were shifted into industries nurtured by government assistance when international financial problems arose. Government incentives and protection spurred investment in targeted industries by raising the returns from prospective investment projects in these industries above the returns from projects in the rest of the private sector. Protectionist measures allowed firms producing goods for domestic consump- tion to enjoy above-average rates of return by shelter- ing them from foreign competition. An array of government subsidies in import-substituting and ex- port industries boosted rates of return in these sectors as well. Brazil's "informatics law" is the best example of government industrial targeting. This measure stimulated local investment in the information-pro- cessing industry by barring imports and providing special assistance to local producers who rushed to fill the void Roles of Public and Foreign Sectors Decline. Like project priorities, the sectoral breakdown of invest- ment also changed when financial problems arose. Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Incomplete data suggest that the public sector's direct role in the investment process, which expanded rapid- ly before the international financial crisis, declined sharply during the past few years. When international financial problems developed, governments were con- fronted with declining revenues and political con- straints on raising taxes. They chose to cut investment spending on infrastructure and in state enterprises rather than trim outlays in the more politically sensi- tive areas of defense and social welfare. We believe the governments of most key LDC debtors slashed their investment budgets between 30 and 50 percent in 1983, cuts in capital expenditure significantly higher than the drop in total investment that occurred that year. Similarly, the international financial crisis reduced even further the role of foreign direct investors in the key LDC debtors. The upward trend in foreign direct investment, which developed during the 1970s, was broken. Foreign investment reached $6.5 billion in 1981 before plummeting by nearly 75 percent during the next three years. Brazil and Mexico were the hardest hit; their foreign investment fell from about $2 billion each in 1980 to about $600 million and $300 million, respectively, in 1984. Investment by foreigners continued to be the most erratic component of investment, reacting faster and more dramatically to changes in the investment environment than other private investment. Since foreign investment fell off faster than investment by private residents, the for- eign share of investment slipped to 1.3 percent in 1984-down a percentage point from 1980. Dependence on Foreign Capital To Finance Invest- ment Broken. Trends in investment finance also were altered by the international financial crisis. The in- creased reliance of the key LDC debtors on foreign capital to finance domestic investment was reversed. Foreign capital inflows-the savings of foreigners obtained mostly through foreign borrowing-fell off dramatically. The amount of foreign savings absorbed by these countries plunged from $35 billion in 1982 to about $4.5 billion in 1984-nearly a 90-percent drop.' Foreign savings inflows in 1984 were about $10 billion lower in both Brazil and Mexico than four years earlier. This sudden drop in foreign savings inflows occurred when commercial banks ceased voluntary lending to most LDCs following Mexico's debt- payment moratorium. The loss of access to foreign savings, coupled with stagnant domestic savings, resulted in an equally dramatic drop in the share of investment financed by foreign savings. This share fell from about 20 percent during 1981-82 to less than 4 percent during the following two years. Key Factors Underlying the Investment Slump The international financial crisis forced the key LDC debtors to undertake economic adjustment, which, in turn, caused the investment slump. During the previ- ous decade, their economies were buffeted by external shocks-oil price jumps, global recessions, and high interest rates. Initially, these countries tried to post- pone the necessary adjustment. Aided by foreign borrowing, they pursued expansionary monetary and fiscal policies and supported overvalued exchange rates. These domestic policy errors led to massive government budget deficits, spiraling inflation, capital flight, and a further deterioration in the balance of payments. Consequently, foreign borrowing acceler- ated and the burden of debt mounted. Following Mexico's debt-payment moratorium in August 1982, banker attitudes shifted, leading to a cutoff of volun- tary lending to most LDCs. The key LDC debtors could not postpone economic adjustment any longer. The measures implementing economic adjustment in the key LDC debtors precipitated the sharp drop in investment that occurred during the past four years. Except for Nigeria and Venezuela, these countries were forced to adopt IMF-supported adjustment pro- grams to secure badly needed financing and resched- uling. Although they have avoided formal adoption of IMF programs, Nigeria and Venezuela have devel- oped their own adjustment programs. In general, IMF adjustment programs mandate economic austerity to stabilize the balance of payments and a gradual return to free markets to boost economic efficiency. Specifically, these programs require: domestic credit contraction, lower government deficits, real wage reductions, trade liberalization, exchange rate devalu- ations, and deregulation of prices and interest rates. Implementation of these adjustment measures in the key LDC debtors resulted in financing difficulties, Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential A Simple Model of Investment Determination Economists have developed a simple model that explains investment determination in an economy (figure 5). According to that model, investment is linked to the difference between the optimal capital stock and the current stock of capital. Although project financing and project cost are also important, expected returns are the major determinant of the optimal capital stock and hence the flow of invest- ment. The necessity of projecting returns, especially in LDCs, injects considerable uncertainty into the process of investment decisionmaking. To estimate future returns, investors must project a wide range of variables that determine future economic and politi- cal conditions. Changes in the expected future path of these variables cause investors to recalculate the optimal capital stock, possibly resulting in a sharp drop or a sudden surge in investment activityF__-] Figure 5 A Simple Model of Investment Determination economic recession, and heightened uncertainty-the key factors we believe are directly responsible for the recent investment slump. Financing Difficulties. We believe financing difficul- ties were the most important factor underlying the recent investment slump in the key LDC debtors. Foreign and domestic savings-the pool of funds available for investment-dropped to levels 80 and 8 percent lower, respectively, than in 1980 (figure 6). Foreign savings, obtained mostly through foreign borrowing, plunged as commercial banks ceased voluntary lending when they downgraded the creditworthiness of these countries following Mexico's debt-payment moratorium. Domestic savings con- tracted when national income fell and the real returns to savers grew increasingly negative, because regulat- ed interest rates did not adjust to spiraling inflation. Interest and exchange rate distortions, coupled with rising political uncertainty, aggravated the savings shortage by spurring capital flight and profit remit- tances. We estimate that more than $100 billion in capital was sent out of Argentina, Brazil, Mexico, and Venezuela during 1979-83. Lower savings stifled in- vestment by pushing up the cost of funds in unregulat- ed capital markets and causing a shortage of funds in Economic Recession. Our analysis indicates that eco- nomic recession was another key factor underlying the recent investment downturn in the key LDC debtors. GDP fell at an average annual rate of about 1 percent during the past four years after growing by nearly 6 percent, on average, during the 1971-80 period (figure 7). This slump in aggregate demand can be traced to deep cuts in government expenditure and a dropoff in consumer spending caused by falling real wages and rising unemployment. Reduced demand led to an investment decline when the expected returns from investment projects plummeted and internally gener- ated investment funds dried up as profits dwindled or turned to losses. When the level of economic activity slowed, capacity utilization in these countries slipped to record lows in the 50-to-60-percent range, putting additional downward pressure on investment regulated markets 25X1 25X1 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Figure 6 Key LDC Debtors: Savings, 1970-84 ? Foreign savings ? Domestic savings Heightened Uncertainty. We believe heightened un- certainty in the key LDC debtors during the past few years also contributed to poor investment perfor- mance. Financial problems increased economic uncer- tainty by forcing sudden adjustment on economic systems that evolved over several decades. Investors had difficulty formulating an economic outlook-a vital input to the investment decisionmaking pro- cess-when the pace, mechanism, and extent of the economic adjustment were unclear. Much of this increased economic uncertainty arose because govern- ments, which determine the parameters of the eco- nomic adjustment, play such a dominant role in the economy. Financial problems also contributed to in- creased political uncertainty.' During the period, Figure 7 Key LDC Debtors: GDP Growth, 1970-84 there were uneasy transition to civilian rule in Argen- tina and Brazil; periods of martial law in Peru, Chile, and the Philippines; a military coup in Nigeria; and growing opposition to the ruling party in Mexico. This heightened economic and political uncertainty ham- pered investment because investors found it impossi- ble to gauge the future returns from prospective investment projects and because massive capital flight restricted the supply of investment funds. Investment during the next five years will play an important role in determining the strength of the expected economic recovery in the key LDC debtors. Our statistical analysis indicates that GDP growth in these countries rose by four-tenths of a percentage point for each percentage point rise in the investment Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Government Intervention: Source of Investor Uncertainty Government intervention in the economies of the key LDC debtors complicates private investment deci- sions. During the 1970s, the role of government in their economies advanced along two fronts. Govern- ment rules and regulations proliferated, severely dis- torting the allocation of economic resources in the private sector. State enterprises expanded rapidly, many producing goods and services in direct competi- tion with private companies. Given the current level of government economic intervention, investment deci- sions depend, in large part, on assessments of future government behavior. When assessing long-term in- vestment projects, local investors must anticipate future government rules, regulations, policies, and procedures affecting domestic production, foreign trade, and international finance. Foreign investors bear the additional burden of projecting future gov- ernment policies relating to foreign direct investment. The dominant role of government in the economy and the uncertainty about future government policies implementing economic adjustment are responsible, we believe, for a large share of current investor uncertainty in the key LDC debtors The following examples illustrate the extent of gov- ernment intervention in the economies of the key LDC debtors. In the area of international trade and .fi- nance, most governments: ? Maintain an "official" exchange rate. ? Provide foreign exchange only for approved transactions. ? Require import and export licenses. ? Set import and export quotas. ? Impose tariffs on imports. ? Provide export subsidies. ? Register capital inflows. ? Approve capital outflows. Within the domestic economy, governments generally: ? Control prices and provide subsidies. ? Set minimum wages and some employee benefits. ? Link wage increases to inflation. ? Set interest rates on deposits and loans. ? Control the level of domestic and foreign credit. ? Allocate credit to preferred sectors. ? Impose taxes and provide subsidies in selected sectors. ? Monopolize public utility industries. ? Run state enterprises that dominate key sectors. ? Act as sole buyer and seller of major commodities. In the area of foreign direct investment, many governments: ? Require approval and registration of investment. ? Restrict entry into certain sectors. ? Tax repatriated profits. ? Limit royalty, dividend, and profit remittances. ? Restrict the share of equity ownership. ? Limit access to domestic credit. ? Provide only partial protection of patents, trade- marks, and copyrights. ? Set performance requirements-local content, em- ployment, exports, employee training, and technol- ogy transfer rate during the 1970s. Investment will also help determine other important economic variables: the pace of structural adjustment, technological advance- ment, balance-of-payments positions, and compliance with IMF programs. These variables will in turn affect political events in and US relations with these strategic LDC Limited Recovery We believe investment in the key LDC debtors will rebound during the next five years, although it is unlikely that investment growth will be high enough to restore investment to its level before the interna- tional financial crisis. We expect investment to grow Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential at an average annual rate of 3 to 5 percent during the rest of this decade, a dramatic improvement over the average decline of 8.2 percent registered during the past four years, but well below the 7.3-percent aver- age growth of the 1971-80 period. Even if these countries sustain investment growth of 5 percent during the next five years, only two-thirds of the 1981-84 investment decline would be reversed; real investment in 1989 would still be 9 percent lower than in 1980. We also project that the share of GDP devoted to capital formation will remain around last year's level of 17-percent-substantially lower than in 1980 On the basis of our analysis of political and economic trends in the key LDC debtors, we expect the follow- ing pattern of investment in these countries during the next five years: ? Continued Public Investment Rationalization. We believe public investment rationalization, which be- gan after the international financial crisis, will continue, but at a slower pace. Governments will favor projects that improve the balance of pay- ments, yield identifiable short-term economic bene- fits, or boost the living standards of the lower income groups. Because severe economic problems forced this rationalization, it is likely that some backsliding will occur as economic pressures slowly dissipate. Limited investment funds, however, should minimize backsliding. ? Uneven Private Investment Recovery. We believe investment will recover in nearly every industry but at widely varying rates. As demand rises, so too will the expected returns from investment projects. Ex- pected returns will determine the investment growth rate in each industry. There may, however, be a lengthy lag between the demand and investment recoveries because many industries are operating at record-low levels of capacity utilization. Construc- tion and consumer-oriented industries will probably lead the investment recovery. Investment in indus- tries nurtured by government assistance should also remain strong. ? Public Sector's Role Unchanged. We foresee no significant change in the public sector's share of investment. Limited government resources and pres- sure to maintain spending in the politically sensitive areas of defense and social welfare should rule out major increases in public investment. On the other hand, despite privatization rhetoric, a deeply rooted orientation toward active government participation in the economy should preclude a significant drop in public investment. ? Minor Role for Foreign Direct Investment. We believe that foreign investment will rise, possibly to its peak before the international financial crisis, but it will continue to play a minor role in the invest- ment process. It is unlikely that foreign investment will exceed $6 billion per year or that its share of total investment will surpass 2 percent. The bulk of foreign investment in these countries should flow into Brazil and Mexico. Although the foreign in- vestment environment will slowly improve, major structural impediments will remain. In general, these countries have not addressed the key concerns of foreign investors, the majority of which existed before the international financial crisis. ? Investment Financed Solely by Domestic Re- sources. These countries will probably have to rely almost exclusively on domestic savings to finance future investment. They will be unable to tap the savings of foreigners through foreign borrowing to the extent they did before the international financial crisis. We believe that voluntary commercial lend- ing to these countries will remain sharply curtailed. Loans from official sources are expected to increase only moderately. Consequently, we expect foreign savings to finance no more than 5 percent of investment during the rest of the decade In our judgment, the projected investment rebound will be caused by economic recovery in the key LDC debtors during the next five years. Aggregate demand could grow at an average annual rate of 3 to 5 percent, less than the 6-percent average growth of the 1971-80 period, but a significant improvement over the average decline of about 1 percent during the last four years. This demand recovery should stimulate Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Figure 8 Key LDC Debtors: Five-Year Investment Outlook Investment growth --~ Indicates projected range, 1985-89 Indicates average. 1971-80 Venezuela Brazil Chile Peru Philippines Argentina Nigeria Key LDC Debtors I I l' I -L - - 1 L- L Figure 9 Key LDC Debtors: Rankings by Key Factors Underlying the Investment Outlook Ranking relative to other key LDC debtors ? Highest 1 Lowest Demand prospects Availability Stability of Investment of investment political- prospects Argentina Brazil funds economic system Chile Mexico Nigeria Peru Philippines Venezuela II 12 investment by increasing the expected returns from investment projects. We foresee minimal improve- ment, however, in the other key factors affecting the pace of investment. Sluggish domestic savings and limited access to foreign savings suggest that the high cost/limited availability of investment funds will con- tinue to put a damper on capital formation. A signifi- cant improvement in the underlying level of political- economic stability in these countries is also unlikely. The level of investor uncertainty should fall marginal- ly, however, as the economic pressures associated with economic adjustment dissipate Individual Country Outlooks Our analysis, described below, indicates that invest- ment growth in the key LDC debtors will vary widely across countries during 1985-89; our projections of average annual investment growth vary between I and 6 percent (figure 8). These projections were developed by ranking each country according to the key factors that will determine investment growth during the period-aggregate demand prospects, cost/availability of investment funds, and stability of the political-economic system (figure 9). On the basis of these rankings, investment growth prospects were assessed and a range of average annual investment growth was set for each country. Our projections were then compared to, and in some cases revised in light of, the investment growth forecasts of major economic consulting firms and other country experts. Given the volatility of investment spending, our projections should be viewed as benchmarks that indicate the underlying trend in investment growth. As has histori- cally been the case, annual investment growth may fluctuate dramatically around five-year averages. We believe Mexico will lead the key LDC debtors with investment growth averaging 4 to 6 percent annually during the next five years, at least 25 percent slower than during the 1971-80 period. Although problems exist, Mexico's demand prospects 25X1 25X1 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential and political-economic stability are ranked higher than those of the other countries. After a period of harsh austerity, demand is projected by the major economic consulting firms to grow at an average annual rate approaching 5 percent during 1985-89. Although opposition parties are gaining strength, the long tenure of the government party should lead to relative political-economic stability. Regarding the availability of investment funds, only Venezuela is ranked higher. Mexico's banking system, mature by LDC standards, is relatively efficient at mobilizing domestic savings. Inflation, devaluation fears, and capi- tal flight will continue to dampen domestic savings growth and limit the supply of funds available for investment. In Venezuela and Brazil annual investment growth could average 3 to 5 percent through 1989. Venezue- la's investment growth could come within a percent- age point of the average annual rate of the 1970s; investment in Brazil may grow at least 50 percent slower. With demand projected to grow at an annual rate of about 4 percent, the demand prospects of these countries are relatively good. Venezuela's traditional- ly high savings rate, low inflation, and relatively stable currency earned Caracas the highest ranking for availability of investment funds. Investment funds may be scarce in Brazil because of triple-digit infla- tion and high devaluation risk. Given Venezuela's two decades of democracy and the broad popular and military support for the constitutional process in Brazil, the future political-economic environment of these two countries should be relatively stable In Peru, Chile, and the Philippines, we believe invest- ment will grow 2 to 4 percent a year through 1989. Investment growth in the Philippines may fall dra- matically from the 11.2-percent annual rate regis- tered during the 1970s. In contrast, Chile's invest- ment growth rate may rise moderately from an average of 1.1 percent during that period. Demand prospects in these countries are considered fair-GDP is expected to grow, on average, about 3 percent a year. Historically low savings in Chile and inflation and devaluation concerns in Peru and the Philippines should limit the supply of investment funds. In Peru and the Philippines, inflation/devaluation rates were roughly 110 and 60 percent, respectively, last year. Although Peru's domestic problems are more serious, instability in all three countries should stifle invest- ment growth. In Peru, the nationalistic, left-leaning policies of President-elect Garcia, the Sendero Luminoso insurgency, and a history of shifting eco- nomic policies raise serious concerns about political- economic stability. In the Philippines, a country with a more stable economic system, the Aquino assassina- tion, the succession question raised by President Marcos's ill health, and a growing insurgency have boosted the level of investor uncertainty. In Chile, we believe rising opposition to the repressive rule of President Pinochet will keep the level of political- economic uncertainty high Average annual investment growth in Argentina and Nigeria should be slower than in the other countries, averaging only 1 to 3 percent through 1989. Argentin- a's investment growth may match its rate of the 1970s, but Nigeria's rate could be a full 7 percentage points lower. Demand in these countries should be sluggish, expanding at an average of about 2 percent a year. Historically, low savings have restricted the supply of investment funds in these countries. This trend should continue as inflation-about 600 and 30 percent last year in Argentina and Nigeria, respec- tively-and devaluation risk discourage domestic sav- ing and spur further capital flight. Although Argenti- na has recently taken bold steps to reduce runaway inflation, the country's economic system may remain unstable. Political stability, however, may improve marginally under President Alfonsin. Although eco- nomic crisis could bring down his government, if the economy continues to limp along, Alfonsin may be the first democratically elected leader since 1952 to com- plete his term. Nigeria, on the other hand, has a more stable economic system, but its political prospects are dismal. Lagos probably will continue to suffer from numerous political problems: divisions in the ruling military, student dissatisfaction, and regional tension. Even if investment in each country grows at the highest projected rate through 1989, only three key Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential LDC debtors will regain the ground lost since the international financial crisis (figure 12 at the end of appendix A). Venezuela, the Philippines, and Nigeria could have investment in 1989 that is 13, 7, and 2 percent higher, respectively, than before the crisis. Their full recovery will result from investment down- turns that were less severe than the other countries' rather than particularly rapid investment growth dur- ing 1985-89. In contrast, we project investment in Argentina, which should remain sluggish through 1989 following its precipitate decline in the 1981-84 period, will still be at least 46 percent lower in 1989 than in 1980. Peru and Chile may regain more lost ground than Argentina, but their investment should still fall about 30 percent short of precrisis peaks. The top two debtors, Mexico and Brazil, aided by relative- ly high investment growth, should regain all but about 15 and 10 percent, respectively, of the ground lost following international financial problems Factors Affecting the Outlook Our investment growth projections are sensitive to five key global economic variables: oil prices, interest rates, world GDP growth, commodity prices, and commercial bank lending. Through the balance of payments, changes in these variables could affect the required level of domestic austerity, in turn affecting the pace of investment. Shifts in these global econom- ic conditions generally will have different effects on the investment outlook of individual key LDC debt- ors. Specifically: ? Falling Oil Prices. An oil price slump would slow investment growth in the oil exporters-Mexico, Venezuela, Nigeria, and Peru-and free more re- sources for investment in the oil importers Brazil, Chile, and the Philippines. Oil price changes would have little direct effect on Argentina because of Buenos Aires' energy independence. ? Rising Interest Rates. A runup of interest rates would probably choke off investment growth in all eight countries. Because of their lower interest payment burden, however, Venezuela and Nigeria are less sensitive to interest rate increases. The other countries are highly vulnerable. Last year, each one devoted more than one-third of their foreign ex- change earnings to interest payments. ? Slower World GDP Growth. Because the key LDC debtors are dependent on exports earnings, a world- wide recession, or even rising protectionism, could have considerable impact on their investment growth. Because nonoil exports react more to chang- ing economic conditions, we would expect invest- ment in Argentina, Brazil, Chile, and the Philip- pines to fall off more than investment in the oil exporters. ? Commodity Price Slump. In several countries, a drop in the price of a key nonoil commodity could have significant impact on investment. The invest- ment outlook for Chile, and Peru to a lesser extent, would be downgraded considerably if copper prices fall sharply. As Buenos Aires becomes increasingly dependent on grain exports, sagging grain prices could damage Argentina's investment prospects. ? Resumption of Bank Lending. Although unlikely, a resumption of voluntary commercial bank lending to some countries would improve their investment out- look significantly. Recent country risk ratings indi- cate that Mexico and Venezuela would be the first countries, if any, to secure voluntary bank lending. With dismal credit ratings, Argentina and Chile would probably be the last countries to secure loans. Our investment projections are also highly sensitive to political conditions in the key LDC debtors. The lackluster investment performance of Peru, Argenti- na, and Chile during the 1970s can be traced directly to political upheaval that spilled over into the econo- my. During periods of political instability, investment declines because investors find it impossible to formu- late an economic outlook-the key to gauging the future returns from prospective investment projects. Heightened political uncertainty also spurs capital flight, choking off investment as the pool of funds available for project financing shrinks. Our projec- tions assume the most likely political scenario-no significant improvement or deterioration in the under- lying level of political stability in these countries Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential during 1985-89. In the event of a major shift in a country's political structure, investment growth could differ significantly from our projection. An unforeseen shift in the pace of domestic economic policy reform in the key LDC debtors would also invalidate our investment projections. We believe that inefficient economic policies are a major roadblock preventing the key LDC debtors from achieving their full economic potential. Our previous research indi- cates that the Latin American debtors have high potential for rapid industrialization; the Philippines and Nigeria have somewhat lower industrialization potential.' Relative to other LDCs, most of these countries have laid a strong foundation for develop- ment, particularly in the areas of health, education, and domestic infrastructure. They continue, however, to follow economic policies hampering economic growth. If they abandoned their current policies of active intervention in and stringent regulation of their economies, we believe that within several years there could be a surge in economic activity, caused in part by a dramatic increase in investment. However, given the shortrun economic and political costs, we foresee minimal reform of domestic economic policy during 1985-89. The investment slump following the international financial crisis and the historically slow investment growth projected through 1989 portend a number of future problems for these eight countries, which could complicate US foreign policy Slower Economic Growth Because investment is required to expand the produc- tive capacity of an economy, slow investment growth in the key LDC debtors may limit their rate of economic growth and development in the longer term. Slow economic growth, coupled with rapid population growth, could lead to minimal improvement or possi- bly continued decline in living standards. On the heels of the sharp drop in living standards registered recent- ly in some countries, any further decline in the standards of living could compound existing political and economic tensions. In the short term, however, slower investment should not limit economic growth because of the record-low levels of capacity utilization in most countries Slower Structural Adjustment Slow investment growth may impede structural ad- justment in the key LDC debtors. In an attempt to solve their international financial problems and, more important, to qualify for badly needed bank loans, these countries have embarked on structural adjust- ment. If actively pursued, this economic restructuring will require significant investment as capital stock must be built up in emerging areas and replaced in areas where the existing capital stock has become obsolete. Given our investment projections, capital shortages may arise and slow the pace of structural adjustment. Slower structural adjustment could jeop- ardize compliance with IMF programs in the short term and cause international financial problems and economic inefficiency to linger over the longer term. Slower Technology Absorption Slow investment growth may limit the transmission of new technology in the key LDC debtors. Ongoing investment is necessary if developing countries are to capitalize on technological advances. Slower invest- ment growth in these countries carries with it a slower rate of technology absorption. With slow investment growth, their capital stocks become outmoded and the countries fall further behind technologically. By set- ting up barriers to foreign direct investment, these countries compound the problem by blocking a key conduit for technological advances. If technology absorption slows, economic growth may be slower and trade competitiveness may be lost, further aggravat- ing existing international financial problems If these problems develop, US relations with the key LDC debtors could become more contentious. Specifically: ? Pressure on US Policy. There could be increased pressure on Washington to take these countries' Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Economic Policy Reform: Limited Progress to Date We believe that the elimination of inefficient econom- ic policies in the key LDC debtors would precipitate a surge in investment that would spark economic growth. However, economic policy reform in these countries since the international financial crisis has been limited. These LDCs successfully reformed poli- cies affecting the balance of payments, but their success in curing domestic economic ills through policy reform was less dramatic. Through a mixture of administrative controls and policy reform, these countries slashed their aggregate current account deficit by nearly 90 percent since 1981. In 1984, the current accounts of Mexico and Venezuela swung into surplus and the other coun- tries' deficits were 40 to 95 percent lower than their peak. Mexico, Brazil, and Venezuela improved their current account balance by $8-10 billion each in the year following financial crisis. This improvement can be traced to strict control offoreign exchange and imports and dramatic currency devaluations. Seven countries sharply devalued their currencies, in real terms, in 1982 or 1983 after several years of steady appreciation. Nigeria, however, continues to stead- fastly resist real devaluation The aggregate fiscal deficit in these countries, which grew by about 100 and 20 percent in 1981 and 1982, began to slowly decline in 1983 as austerity measures took hold. Mexico, Venezuela, and the Philippines made the most progress. In contrast, deficits in Argentina and Brazil continued to grow. The coun- tries addressed fiscal deficits by first slashing invest- ment spending by 30 to 50 percent in 1983. They then turned to current expenditures, reducing real wages, limiting subsidies, and scaling back state enterprises. In Brazil, for example, Law 2065 was passed limiting wage indexation and the Special Secretariat of State Company Control was formed to scrutinize the bud- gets of some 300 public companies. Increased atten- tion was also paid to tax collection. To combat tax evasion, Mexico formed a 3,000-lawyer task force and stiffened the penalties for tax cheating Although some key LDC debtors have taken steps to reform their financial systems, most have made minimal progress in controlling money supply growth. Rapid money supply growth caused their average inflation rate, excluding Argentina, to double during the past four years, reaching 70 percent in 1984. Inflation topped 600, 200, and 110 percent last year in Argentina, Brazil, and Peru, respectively. Rapid money supply growth can be traced to increased pressure on central banks to expand domestic credit to cover fiscal deficits previously financed by foreign borrowing. More progress has been made in the area of structural reform. Mexico, Brazil, and the Philip- pines have taken some steps to consolidate or deregu- late their financial systems. Like the rest of the countries, however, their financial systems remain highly regulated. Some key LDC debtors have made progress in re- forming highly visible economic policies that distort the allocation of resources, but most other supply- distorting policies and procedures remain. In the politically sensitive area of price controls and subsi- dies, the degree of reform spans the spectrum: Argen- tina relied increasingly on price controls and subsi- dies under Alfonsin; Brazil pursued an "off again, on again" course; Mexico, Venezuela, and the Philip- pines reduced the scope of price controls and subsi- dies, concentrating on staple goods. In contrast, there has been little variation in the degree of reform in less-visible supply policies. Most supply-distorting taxes, tariffs, producer pricing policies, trade con- trols, administrative procedures, and legislative and institutional constraints remain. In fact, given the increased regulation of international trade and fi- nance, supply distortion may actually be on the rise. Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential needs into account during the formulation of US monetary, fiscal, and trade policies. ? Pleas for US Assistance. They could press the United States for increased development assistance. In a cash-flow bind, the United States may be forced into the role of "lender of last resort." ? United States Caught in Crossfire. If debtor-credi- tor conflicts arise, the United States could be caught in the middle; both debtors and creditors would pressure Washington to support their posi- Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Appendix A Investment Trends Before the Financial Crisis Investment in the key LDC debtors rose steadily during the decade before the international financial crisis as the countries committed an increasing share of their economic resources to expanding the produc- tive capacity of their economies. Despite deteriorating investment climates in some countries, investment grew at an average annual rate of 7.3 percent during the 1971-80 period some 1.5 percentage points fast- er than during the previous decade. On average, the pace of investment surpassed the average annual growth rate of GDP by nearly 2 percentage points. Consequently, the share of GDP devoted to expansion of the countries' capital stock rose to 23.5 percent in 1980--up from 19.8 percent in 1970. The Philippines, Nigeria, and Brazil led the key LDC debtors with average annual investment growth of 11.2, 10.4, and 9.6 percent, respectively. Investment in the Philippines rose steadily following the imposi- tion of martial law, which quelled the political unrest that threatened the Marcos regime in the early 1970s. Nigeria's rapid investment growth can be traced to a dramatic expansion of state enterprises, especially in the energy sector. Private-sector investment, however, was stifled by nationalization fears and political insta- bility-coups, attempted coups, and a shaky transi- tion to civilian rule. Powered by demand growth averaging 9 percent per year, strong domestic savings growth, and more than $40 billion of net foreign borrowing during the 1976-80 period, investment in Brazil shot up from $23 billion in 1970 to $58 billion in 1980. In Mexico and Venezuela, investment grew at an average annual rate of 8.3 and 6.1 percent, respective- ly. Mexican investment expanded until financial prob- lems arose in 1976-77 and then rose sharply through the rest of the decade, financed by rising oil revenues and foreign borrowing. Complementing rising state enterprise investment, much of it in the oil industry, private-sector investment was strong because of rising demand, attractive financing, and a stable political- economic system. In Venezuela, investment sagged twice during the decade, when Caracas joined the Andean Pact in 1974 and when the Herrera adminis- tration embarked on economic austerity during 1978- 80. A proliferation of state enterprises and a surge in foreign borrowing, which caused foreign debt to in- crease tenfold during the 1976-80 period, precipitated a jump in public-sector investment. Private-sector investment was limited by modest demand growth and a shrinking pool of locally generated investment funds, the result of massive capital flight Investment in Peru, Argentina, and Chile was slug- gish during the 1970s, growing at average annual rates of 5.1, 3.1, and 1.1 percent, respectively. Eco- nomic and political upheaval was the root cause of this lackluster investment performance: Peru adopted Plan Inca in 1974-a plan for the eventual transfor- mation of all economic institutions along socialist lines: Juan and Isabel Peron led Argentina down the socialist path until the military intervened in 1976 to suppress growing civil unrest. In Chile, outbreak of virtual civil war in 1973, during the term of socialist President Allende, was followed by a five-year "state of emergency." Investment in these countries was also hampered by slack demand and scarce investment funds. Demand grew only 2 to 3 percent a year, on average, during this period. Domestic savings slumped as accelerating inflation eroded the returns to savers. The average annual inflation rate in Argentina and Chile exceeded 120 percent Supporting the view that investment growth is a major determinant of the pace of economic develop- ment, the historical relationship between investment and GDP growth in the key LDC debtors is strong (figure 10). Although a wide range of factors influence the pace of economic development, investment is often the key because capital generally is the scarcest of all Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Figure 10 Key LDC Debtors: GDP and Investment Growth, 1960s and 70s e 1960s ? 1970s 0 -2 0 2 4 6 8 10 12 14 Investment growth rate the factors required to expand production in LDC economies over the longer term. Our statistical analy- sis indicates that investment growth explains nearly 70 percent of the variation in GDP growth in these countries during the 1970s. Moreover, we estimate that GDP growth rose by four-tenths of a percentage point for each 1-percentage-point rise in the rate of investment during the decade. Although the link between the two is imperfect, the rate of investment is an important predictor of GDP growth, which in turn is a key indicator of future economic and political conditions in LDCs As the volume of investment in the key LDC debtors rose, a pattern of investment evolved during the decade before the international financial crisis. Im- portant trends in the type, sector, and financing of Figure 11 Key LDC Debtors: Pattern of Investment, 1980 Machinery and equipment 40.3 Private sector 64.0 Public sector 33.6 Foreigners 2.4 Domestic savings 89.1 Foreign savings 10.9 Types of Projects Although investment projects in the private sector of the key LDC debtors were small and highly diversi- fied during the 1970s, public-sector investment was generally concentrated in large construction projects. This concentration may explain the rise in the con- struction share of investment that occurred in most countries during the period (figure 11). These projects fall into four general categories: ? Resource Projects. In several countries, there was large investment in projects exploiting mineral re- sources. The surge in petroleum output in Mexico and Nigeria was the result of massive investment in the oil sector during the 1970s. In Peru and Chile, investment funds were allocated to large mining projects like Peru's Cuajone copper mine. investment developed during this period Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Table 1 Key LDC Debtors: Sectoral Investment Trends Investment (billion 1980 US $) Public Share of Investment (percent) Foreign Share of Investment (percent) Argentina 25.5 34.8 38.0 41.6 0.1 1.9 Brazil 23.3 58.4 18.5 10.4 3.5 3.2 Chile 4.4 4.9 56.9 26.5 NA 4.3 Mexico 19.6 43.7 33.0 43.0 3.2 4.9 Nigeria 7.9 21.2 29.3 62.0 5.1 NA Peru 1.7 2.8 27.3 32.0 NA 1.0 Philippines 3.0 8.7 10.9 16.2 NA 2.9 Venezuela 8.3 15.0 23.2 50.0 NA 0.4 ? Ittlrastructure Projects. Large projects that bolster energy, transportation, and communication net- works were given priority. Ambitious projects in this category include Brazil's Trans-Amazon Highway and Itaipu hydroelectric complex. More resources were also devoted to improving previously ignored residential housing stocks. ? Industrial Projects. A substantial amount of public funds were invested in heavy industry facilities like steel mills, aluminum smelters, petrochemical plants, paper mills, and oil refineries. Rising invest- ment in these projects help place Brazil, Mexico, Venezuela, and the Philippines among the most rapidly industrializing countries of the 1970s. ? "Glamour" Projects. Investment funds were also sunk into large "prestige" projects that probably were not justified on economic grounds. Such proj- ects include international airports, fancy hotels, subway systems, and superhighways. Brazil and Argentina also embarked on costly nuclear power programs. Roles of Public and Foreign Sectors Rise During the 197 1-80 period, the public sector's role in the investment process expanded rapidly in most key LDC debtors. As a group, the public sector's share of investment reached 33.6 percent in 1980-up from 29.9 percent in 1970. Public-sector involvement, how- ever, varied widely across countries (table 1). In 1980 the public sector's share was highest, 40 to 60 percent, in Nigeria, Venezuela, Mexico, and Argentina, and lowest, 10 to 20 percent, in Brazil and the Philippines. During the decade the share rose in six countries by an average of 14 percentage points. The share jumped some 30 percentage points to 62 and 50 percent in Nigeria and Venezuela, respectively, as state enter- prises, especially those in the energy sector, expanded rapidly. In contrast, a shift away from socialist ideolo- gy in Chile and rapid private-sector growth in Brazil caused the share to drop by 30.4 and 8.1 percentage points, respectively] Although foreign direct investment in the key LDC debtors increased during the decade, foreign investors played a minor role in the capital formation process. Foreign investment reached $4.5 billion in 1980-$3 billion higher than in 1970. Brazil and Mexico, with about $2 billion of foreign investment each, accounted for nearly 90 percent of the total. The foreign share of Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Table 2 Key LDC Debtors: Trends in Investment Financing Argentina Brazil Chile Mexico Nigeria Peru Philippines Venezuela Domestic Savings Foreign Savings a Foreign/Total (billion 1980 US $) (billion 1980 US $) (percent) 25.7 28.7 0.3 4.8 1.2 14.3 24.2 53.9 1.6 12.8 6.3 19.2 2.3 4.7 0.2 2.0 7.1 29.4 20.5 42.6 2.1 8.2 9.2 16.1 8.0 2.9 3.7 14.1 investment, however, was only 2.4 percent in 1980, up a fraction from 1970. The share rarely exceeded 5 percent in any country during the period. Excessive government regulation and high country risk appear to be the root causes of sluggish foreign investment performance. Many of these countries adopted highly restrictive foreign investment regulations, like those in the Andean Pact, to shelter local industries and to avoid "foreign economic domination." In others, polit- ical instability and nationalization jitters clouded the foreign investment climate Growing Dependence on Foreign Capital Although the contribution of foreign direct investors was small, the key LDC debtors relied increasingly on foreign savings, secured mostly through foreign bor- rowing, to finance domestic investment during the 1970s. These LDCs absorbed more than $20 billion in foreign savings in 1980-four times more than a decade earlier. About $26 billion of foreign savings flowed into the top three debtors-Argentina, Brazil, and Mexico-that year (table 2). In contrast, Nigeria and Venezuela, with surpluses because of rising oil revenues and low debt service, each transferred $4.5 billion of their savings to foreigners. As a group, 2.0 2.5 17.5 -4.7 1.4 NA foreign savings financed about 11 percent of invest- ment in 1980-up from 4.5 percent in 1970. Chile's reliance on foreign savings to finance investment was far greater than that of the other countries. Nearly 30 percent of investment in Chile was financed by for- eign savings in 1980, compared with an average of 17 percent in the other countries with foreign savings Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Figure 12 Key LDC Debtors: Investment, 1970-89a Note scale change Brazil I I I I I I I I 1 I I I I I '. I I I I I I 0 1970 75 80 84 89 0 1970 75 80 84 89 0 1970 75 0 1970 75 80 84 89 0 1970 75 80 84 89 0 1970 75 80 84 89 0 1970 75 80 84 89 ,'Shaded area represents the projected range of investment during the 1981-89 period, as timing our projected range of average annual investment growth. Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Appendix B Supporting Data a Table B-1 Key LDC Debtors: Volume of Investment Total 52.6 65.1 93.7 143.1 Argentina 15.9 16.6 25.5 26.9 29.1 34.8 31.3 32.5 34.8 26.8 22.7 19.8 16.3 Brazil 51.1 50.3 53.1 55.4 58.4 54.3 52.7 44.4 41.4 Chile 2.5 2.9 3.4 4.0 4.9 5.6 3.5 3.0 3.2 Mexico 8.2 12.5 19.6 29.3 29.4 38.0 43.7 50.1 42.1 31.5 31.9 Nigeria 2.0 4.4 7.9 16.2 18.4 23.2 19.9 18.9 21.2 21.2 16.8 18.3 18.7 Peru 1.0 1.7 1.7 3.4 2.9 2.4 2.1 2.2 2.8 3.3 3.2 2.1 2.0 Philippines 1.7 2.7 3.0 5.7 6.2 6.5 7.3 8.4 8.7 8.8 8.9 8.6 7.8 Venezuela 7.8 9. 7 8.3 11.5 16.5 21.7 22.1 18.6 15.0 15.2 15.2 14.5 13.5 Table B-2 Key LDC Debtors: Average Annual Growth Rate of Investment Total 4.3 6.5 10.2 9.1 8.4 0.9 Argentina 4.4 5.4 0 8.2 19.6 -10.1 Brazil 0 4.5 12.9 8.5 -1.6 5.6 4.3 5.4 -7.0 -2.9 - 15.7 -6.8 Chile -5.6 7.3 -21.1 -16.7 16.0 17.2 17.6 22.5 14.3 -37.5 -14.3 6.7 Mexico 6.8 7.7 9.3 0.3 -6.8 15.3 20.3 15.0 14.6 -16.0 -25.2 1.3 Nigeria 15.8 43.6 24.6 13.6 26.1 -14.2 -5.0 12.2 0 - 20.8 8.9 2.2 Peru 21.4 6.2 6.2 -14.7 -17.2 -12.5 4.8 27.3 17.9 -3.0 -34.4 -4.8 Philippines 3.8 -11.8 32.6 8.8 4.8 12.3 15.1 3.6 1.1 1.1 -3.4 -9.3 Venezuela Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Table B-3 Key LDC Debtors: Investment as a Share of GDP Total 19.9 19.1 19.8 Argentina 20.2 17.0 21.2 Brazil 22.0 19.0 21.5 Chile 20.4 19.9 20.5 Mexico - 16.4 17.8 19.9 Nigeria __10.7 18.2 15.7 Peru 11.5 14.4 12.0 Philippines 14.4 17.8 15.4 22.6 23.4 24.0 23.6 23.1 23.5 22.9 20.7 18.3 17.2 19.4 21.1 23.7 22.1 21.5 22.9 18.8 16.8 14.3 11.5 26.5 26.2 24.4 24.6 24.1 23.5 22.3 21.4 18.6 17.2 15.6 12.6 13.3 14.4 15.6 17.8 19.2 14.0 12.1 12.4 21.7 20.9 18.8 20.1 22.1 23.5 24.9 21.0 16.5 16.4 24.3 24.9 29.4 26.7 24.0 26.8 28.3 22.9 26.1 27.0 19.2 16.0 13.3 11.7 11.8 14.4 16.3 15.8 11.7 11.1 21.8 22.2 21.8 23.1 24.9 Table B-4 Key LDC Debtors: Investment in Construction Total 34.1 38.5 54.8 80.0 89.8 99.7 103.7 107.0 113.1 Argentina 9.5 9.3 15.9 16.8 18.6 20.5 20.2 20.2 21.9 Brazil 10.8 9.6 13.5 24.4 28.9 31.3 33.6 35.2 37.3 Chile 1.8 2.3 2.7 1.8 1.4 1.4 1.6 1.9 2.4 Mexico 16.5 16.1 18.3 20.7 23.3 Nigeria 10.5 13.8 12.1 11.8 13.5 Peru Philippines Venezuela Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Table B-5 Key LDC Debtors: Construction Investment as a Share of Total Investment Total 64.8 59.2 58.5 55.9 57.5 58.9 60.7 60.1 59.7 Argentina 59.5 55.8 62.4 62.5 63.9 58.9 64.4 62.3 62.9 Brazil 82.3 68.4 58.0 51.9 56.5 62.2 63.3 63.5 63.9 Chile 61.2 67.6 61.5 59.2 56.7 48.9 46.8 47.8 48.2 Mexico 62.2 56.3 57.3 54.3 56.1 58.6 57.8 54.5 53.3 Nigeria 64.5 62.9 59.0 62.9 57.2 59.6 60.9 62.3 63.7 Peru 54.8 49.5 48.8 47.3 50.5 54.4 56.9 55.5 55.2 Philippines 57.5 55.2 39.0 40.9 49.1 51.8 48.5 47.3 47.6 Venezuela 53.5 53.7 57.9 60.7 57.1 55.2 59.6 64.2 61.1 Table B-6 Key LDC Debtors: Investment in Machinery and Equipment Total 18.5 26.6 38.9 63.1 66.3 69.5 67.1 71.0 76.4 Argentina 6.4 7.3 9.6 10.1 10.5 14.3 11.1 12.3 12.9 Brazil 2.3 4.5 9.8 22.7 22.2 19.0 19.5 20.2 21.1 Chile 1.1 1.1 1.7 1.2 1.1 1.5 1.8 2.1 2.5 Mexico 3.1 5.5 8.4 13.4 12.9 11.3 13.3 17.3 20.4 Nigeria 0.7 1.6 3.2 6.0 7.9 9.4 7.8 7.1 7.7 Peru 0.5 0.9 0.9 1.8 1.4 1.1 0.9 1.0 1.3 Philippines 0.7 1.2 1.8 3.4 3.2 3.1 3.8 4.4 4.6 Venezuela 3.6 4.5 3.5 4.5 7.1 9.7 8.9 6.7 5.8 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Table B-7 Key LDC Debtors: Investment in Machinery and Equipment as a Share of Total Investment 1960 1965 1970 1975 1976 1977 1978 1979 1980 Total 35.2 40.8 41.5 44.1 42.5 41.1 39.3 39.9 40.3 Argentina 40.5 44.2 37.6 37.5 36.1 41.1 35.6 37.7 37.1 Brazil 17.7 31.6 42.0 48.1 43.5 37.8 36.7 36.5 36.1 Chile 38.8 32.4 38.5 40.8 43.3 51.1 53.2 52.2 51.8 Mexico 37.8 43.7 42.7 45.7 43.9 41.4 42.2 45.5 46.7 Nigeria 35.5 37.1 41.0 37.1 42.8 40.4 39.1 37.7 36.3 Peru 45.2 50.5 51.2 52.7 49.5 45.6 43.1 44.5 44.8 Philippines 42.5 44.8 61.0 59.1 50.9 48.2 51.5 52.7 52.4 Venezuela 46.5 46.3 42.1 39.3 42.9 44.8 40.4 35.8 38.9 Table B-8 Key LDC Debtors: Investment in the Public Sector Total 15.3 19.1 28.0 43.1 54.3 59.9 59.1 57.3 63.7 Argentina 4.0 5.1 9.7 10.8 13.4 15.6 14.3 13.4 14.5 Brazil 2.7 3.5 4.3 7.4 8.6 8.5 7.6 6.4 6.1 Chile 1.2 1.6 2.5 2.2 1.6 1.5 1.5 1.3 1.3 Mexico 3.3 4.0 6.5 12.1 11.2 10.4 13.7 16.1 18.8 Nigeria 1.0 1.4 2.3 5.7 12.4 15.1 13.0 11.5 13.1 Peru 0.1 0.2 0.5 1.2 1.0 0.8 0.6 0.7 0.9 Philippines 0.3 0.3 0.3 0.7 0.7 0.8 0.9 1.1 1.4 Venezuela 2.7 2.8 1.9 2.9 5.5 7.1 7.4 6.7 7.5 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Table B-9 Key LDC Debtors: Public-Sector Share of Total Investment Total 29.1 29.3 29.9 30.1 34.8 35.4 34.6 32.2 33.6 Argentina 25.1 30.9 38.0 40.1 46.1 44.8 45.6 41.1 41.6 Brazil 20.7 24.9 18.5 15.8 16.8 16.9 14.4 11.6 10.4 Chile 41.2 48.4 56.9 73.7 62.8 53.4 45.5 33.3 26.5 Mexico 40.2 32.4 33.0 41.4 38.1 38.1 43.5 42.4 43.0 Nigeria 50.4 31.6 29.3 35.0 67.4 65.1 65.2 60.8 62.0 Peru 9.4 14.3 27.3 36.3 33.8 32.3 28.2 31.8 32.0 Philippines 15.3 11.3 10.9 12.0 11.9 11.8 11.7 13.3 16.2 Venezuela 35.2 28.6 23.2 25.6 33.3 32.7 33.7 36.2 50.0 Table B-10 Key LDC Debtors: Investment in the Private Sector by Locals Total 36.3 44.7 64.2 95.5 99.0 105.0 107.1 115.3 121.3 Argentina 11.7 11.4 15.8 16.0 15.5 19.0 16.7 18.9 19.7 Brazil 10.0 10.2 18.2 37.9 40.4 39.4 43.0 46.3 50.5 Chile 1.6 1.8 2.1 0.7 0.9 1.3 1.6 2.4 3.4 Mexico 4.6 7.9 12.5 16.3 17.3 16.2 16.8 20.4 22.8 Nigeria 0.9 2.6 5.2 10.0 5.5 7.5 6.7 7.1 8.8 Peru 0.9 1.4 1.4 1.7 1.7 1.6 1.5 1.4 1.9 Philippines 1.5 2.4 2.7 4.9 5.3 5.4 6.2 7.1 7.0 Venezuela 5.1 6.9 6.4 8.0 12.2 14.6 14.6 11.8 7.4 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Table B-I1 Key LDC Debtors: Local Private Investment as a Share of Total Investment Total 69.0 68.6 68.5 66.8 63.4 62.0 62.7 64.8 64.0 Argentina 73.8 68.5 61.9 59.5 53.4 54.7 53.4 58.2 56.5 Brazil 76.3 72.5 78.0 80.4 79.1 78.3 81.0 83.5 86.4 Chile 54.3 54.3 46.6 24.0 37.3 45.6 47.9 59.9 69.2 Mexico 55.7 63.5 63.8 55.8 59.0 59.2 53.3 53.7 52.1 Nigeria 45.7 60.0 65.6 61.5 30.1 32.4 33.5 37.4 41.4 Peru 88.0 80.3 80.7 51.0 58.3 64.7 70.3 64.6 67.0 Philippines 88.5 89.6 90.7 85.6 85.2 83.6 85.0 84.1 80.9 Venezuela 65.6 71.3 77.3 69.4 74.0 67.3 65.9 63.3 49.6 Table B-12 Key LDC Debtors: Investment in the Private Sector by Foreigners Total 1.0 1.3 1.5 4.5 2.8 4.3 4.6 5.4 4.5 6.5 4.8 2.4 1.7 Argentina 0.2 0.1 0 0.1 0.1 0.2 0.3 0.2 0.7 0.7 0.2 0.1 0.1 Brazil 0.4 0.4 0.8 1.8 2.1 2.4 2.5 2.7 1.9 2.3 2.5 1.3 0.6 Chile 0.1 -0.1 -0.2 0.1 0 0 0.2 0.3 0.2 0.3 0.3 0.1 0.1 Mexico 0.3 0.5 0.6 0.8 0.9 0.7 1.0 1.5 2.1 2.3 0.7 0.4 0.3 Nigeria 0.1 0.4 0.4 0.6 0.5 0.6 0.3 0.3 -0.7 0.2 0.3 0.3 0.2 Peru 0 0.1 -0.1 0.4 0.2 0.1 0 0.1 0 0.1 0.1 0 0.1 Philippines -0.1 0 0 0.1 0.2 0.3 0.2 0.2 0.3 0.4 0.4 0.1 0.1 Venezuela -0.1 0 0 0.6 -1.2 0 0.1 0.1 0.1 0.2 0.2 0.1 0.2 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Table B-13 Key LDC Debtors: Foreign Private-Sector Investment as a Share of Total Investment Total 1.9 2.1 1.6 3.1 1.8 2.6 2.7 3.0 2.4 3.5 2.9 1.7 1.3 Argentina 1.1 0.6 0.1 0.4 0.5 0.5 1.0 0.7 1.9 2.8 1.0 0.8 0.5 Brazil 3.0 2.6 3.5 3.8 4.1 4.8 4.6 4.9 3.2 4.2 4.8 2.8 1.4 Chile 4.5 NA NA 2.3 NA 1.0 6.6 6.8 4.3 6.2 9.4 4.1 4.1 Mexico 4.1 4.1 3.2 2.8 2.9 2.7 3.2 3.9 4.9 4.6 1.8 1.3 0.9 Nigeria 3.9 8.4 5.1 3.5 2.5 2.5 1.3 1.8 NA 0.7 1.8 1.6 1.3 Peru 2.6 5.4 NA 12.7 7.9 3.0 1.5 3.6 1.0 3.4 1.6 1.4 3.4 Philippines NA NA NA 2.4 2.9 4.6 3.3 2.6 2.9 4.9 4.2 1.0 1.3 Venezuela NA 0.1 NA 5.0 NA NA 0.4 0.5 0.4 1.1 1.4 0.5 1.4 Table B-14 Key LDC Debtors: Total Savings Total 53.0 72.5 106.3 157.6 170.9 184.0 184.0 183.3 189.3 190.4 186.6 159.2 159.4 Argentina 13.0 15.4 26.1 27.5 32.5 38.5 35.6 34.6 33.4 27.2 30.5 29.6 30.5 Brazil 14.0 16.9 25.8 55.9 58.6 59.2 58.6 62.0 66.7 61.7 66.6 53.6 51.2 Chile 1.3 2.0 2.5 3.2 2.9 3.5 4.4 5.0 6.7 7.9 4.8 5.7 5.7 Mexico 10.0 16.2 22.6 34.6 34.2 34.9 38.9 44.6 50.7 59.1 45.9 39.0 43.2 Nigeria 1.5 4.5 8.8 17.6 21.1 23.6 21.4 19.8 20.6 20.2 17.4 20.7 17.7 Peru 3.0 3.6 2.5 5.3 4.5 3.6 3.4 2.5 3.0 4.5 4.6 3.1 3.5 Philippines 1.8 2.1 3.8 7.1 8.2 8.3 9.4 10.8 11.6 12.0 13.2 13.0 10.5 Venezuela 8.6 11.8 14.3 6.5 9.0 12.3 12.4 4.1 -3.4 -2.0 3.6 -5.5 -2.8 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Table B-15 Key LDC Debtors: Domestic Savings Total Argentina 50.6 53.9 51.0 52.5 48.2 48.5 0.9 1.9 2.3 2.5 3.1 2.8 3.1 3.7 4.7 3.5 2.8 4.8 4.7 9.2 15.2 20.5 28.9 29.6 32.6 35.1 38.6 42.6 46.4 43.4 43.6 45.0 Nigeria 1.0 3.9 8.0 17.7 20.6 22.3 16.9 21.6 24.8 14.9 11.1 17.8 17.3 Peru 3.0 3.3 2.9 3.1 2.9 2.4 3.1 3.4 3.0 3.0 3.2 2.3 2.7 Philippines 1.8 2.4 3.7 5.8 6.7 7.3 8.0 9.1 9.6 9.9 10.3 10.6 9.3 Venezuela 9.6 11.9 14.1 9.6 9.4 8.3 5.6 4.5 1.4 1.6 -0.1 -1.2 -0.6 Table B-16 Key LDC Debtors: Share of Domestic Savings in Total Savings Total 95.2 99.4 95.5 88.2 90.9 91.5 86.9 90.2 89.1 80.4 Argentina- 95.9 103.5 98.8 93.4 102.7 103.7 106.2 98.4 85.7 84.1 93.0 92.7 92.6 Brazil 90.4 104.0 93.7 82.2 84.9 89.0 85.8 81.5 80.8 82.6 78.9 90.0 94.9 Chile 73.0 94.8 92.9 78.0 106.9 79.7 70.9 73.9 70.6 44.9 58 7 84 4 81 2 . . . Mexico 91.6 94.0 90.8 83.4 86.6 93.2 90.3 86.6 83.9 78.5 94.5 111.8 104.0 Nigeria 65.4 86.8 91.8 100.3 97.7 94.5 79.0 109.2 120.7 73.9 63.8 86.0 98.2 Peru , 100.7 90.2 115.7 58.7 64.4 66.9 93.2 134.1 102.1 66.3 69.0 75.3 75.9 Philippines Venezuela 81.6 81.8 87.5 85.3 84.2 82.5 82.5 78.1 81.7 88.5 NA NA 21.6 22.1 81.2 96.5 97.2 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Table B-17 Key LDC Debtors: Foreign Savings Total 2.5 0.4 4.8 18.6 15.6 15.7 24.1 17.9 20.7 37.3 35.0 5.6 4.4 Argentina 0.5 -0.5 0.3 1.8 -0.9 -1.4 -2.2 0.6 4.8 4.3 2.1 2.2 2.3 Brazil 1.3 -0.7 1.6 9.9 8.8 6.5 8.3 11.4 12.8 10.7 14.1 5.4 2.6 Chile 0.3 0.1 0.2 0.7 -0.2------0.7 1.3 1.3 2.0 4.3 2.0 0.9 1.1 Mexico 0.8 1.0 2.1 5.7 4.6 2.4 3.8 6.0 8.2 12.7 2.5 -4.6 -1.7 Nigeria 0.5 0.6 0.7 -0.1 0.5 1.3 4.5 -1.8 -4.2 5.3 6.3 2.9 0.3 Peru 0 0.4 -0.4 2.2 1.6 1.2 0.2 -0.9 -0.1 1.5 1.4 0.8 0.9 Philippines 0 0.3 0.1 1.3 1.5 1.0 1.4 1.7 2.0 2.1 2.9 2.4 1.2 Venezuela -1.0 0.1 0.2 -3.1 -0.3 4.0 6.8 -0.4 -4.7 -3.7 3.7 -4.3 -2.2 Table B-18 Key LDC Debtors: Foreign Savings as a Share of Total Savings Total 4.8 0.6 4.5 11.8 9.1 8.5 13.1 9.8 10.9 19.6 18.8 3.5 2.8 Argentina 4.1 NA 1.2 6.6 NA NA NA 1.6 14.3 15.9 7.0 7.3 7.4 Brazil 9.6 NA 6.3 17.8 15.1 11.0 14.2 18.5 19.2 17.4 21.1 10.0 5.1 Chile 27.0 5.2 7.1 22.0 NA 20.3 29.1 26.1 29.4 55.1 41.3 15.6 18.8 Mexico 8.4 6.0 9.2 16.6 13.4 6.8 9.7 13.4 16.1 21.5 5.5 NA NA Nigeria 34.6 13.2 8.2 NA 2.3 5.5 21.0 NA NA 26.1 36.2 14.0 1.8 Peru NA 9.8 NA 41.3 35.6 33.1 6.8 NA NA 33.7 31.0 24.7 24.1 Philippines 0.6 NA 2.5 18.4 18.2 12.5 14.7 15.8 17.5 17.5 21.9 18.3 11.5 Venezuela NA NA 1.4 NA NA 32.9 54.8 NA 140.2 178.6 102.6 78.4 77.9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Table B-19 Key LDC Debtors: Gross Domestic Product Total 264.2 341.0 472.2 631.8 668.3 705.3 722.8 770.4 807.8 807.9 798.4 777.0 783.2 Argentina 78.9 97.7 120.4 138.7 138.0 146.9 141.9 151.0 152.2 142.7 135.1 138.9 141.7 Brazil 59.6 74.3 108.4 177.9 195.2 205.8 215.7 230.1 248.2 243.4 246.8 239.0 240.2 Chile 14.2 17.1 21.5 19.2 19.9 21.8 23.6 25.6 27.6 29.1 25.0 24.8 25.9 Mexico 49.9 70.4 98.3 135.0 140.7 145.6 157.6 172.0 186.3 201.1 200.1 190.7 194.7 Nigeria 18.7 24.2 50.2 66.8 73.9 78.9 74.4 78.8 79.2 75.0 73.4 70.1 69.4 Peru 8.7 11.8 14.2 17.7 18.1 18.1 18.0 18.7 19.4 20.2 20.3 17.9 18.0 Philippines 11.8 15.2 19.5 26.1 27.9 29.8 31.6 33.7 35.4 36.7 37.6 38.2 36.2 Venezuela 22.4 3 0.3 39.7 50.4 54.6 58.4 60.0 60.5 59.5 59.7 60.1 57.4 57 1 . Table B-20 Key LDC Debtors: Average Annual Growth Rate of Real Gross Domestic Product 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Total 5.7 9.0 2.6 5.8 5.5 2.5 6.6 4.9 0 - 1.2 - 2.7 0.8 Argentina 9.2 5.3 -0.8 -0.5 6.4 -3.4 6.4 0.8 -6.2 -5.3 2.8 2.0 Brazil 3.1 9.7 5.6 9.7 5.4 4.8 6.7 7.9 -1.9 1.4 -3.2 0.5 1.2 2.4 -12.7 3.6 9.5 8.3 8.5 7.8 5.4 -14.1 -0.8 4.4 2.5 29.7 -2.5 10.6 6.8 -5.7 5.9 0.5 -5.3 -2.1 -4.5 -1.0 Peru 5.4 6.0 4.7 2.3 0 -0.6 3.9 3.7 _ 4.1 0.5 -11.8 0.6 Philippines 5.6 4.8 6.5 6.9 6.8 6.0 6.6 5.0 3.7 2.5 1.6 -5.2 Venezuela 5.2 8.8 6.1 8.3 7.0 2.7 0.8 -1.7 0.3 0.7 -4.5 -0.5 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9 Confidential Confidential Sanitized Copy Approved for Release 2010/12/14: CIA-RDP97R00694R000500150001-9