Assessing debt servicing capacity of developing countries and implications for policy: a survey

by Hadi Soesastro

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Recent developments in international lending and borrowing have invoked interest in the debt servicing capacity (DSC) of developing countries. This survey shows assessments that have been made of DSC and the complex policy implications which follow from these assessments. Earlier works of DSC assessments were sponsored almost exclusively by the World Bank, UNCTAD, OECD, and U.S. AID. These were undertaken primarily to recommend to creditor countries the appropriate terms of aid. Commercial banks' increased participation in international lending have made them perform DSC assessment as well. Creditworthiness evaluations by banks are meant to set country ceilings in their overseas loan portfolio, not to determine terms of lending. This survey shows how policies for DSC-control by developing countries themselves can be structured and designed. The survey discusses various assessment methodologies, and how they were applied in empirical studies to determine DSC indicators.

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