7 - Financial Aid and Private Banking Institutions

Abstract

Private bank lending through the international credit and capital markets (defined as foreign and international bond markets and publicized Eurocurrency credits) has assumed great significance in the external financing requirement of non-oil developing countries (NODCs). While much of the rapid growth in international bank lending to NODCs can be traced back to 1970–1973, a period that coincided at once with high liquidity in the private banking sector and with booming developing-country exports because of higher commodity prices, the involvement of private banks in NODCs became particularly pronounced after the oil-related crisis of late 1973. During 1974–1976 alone, private bank lending provided nearly 40% of the annual net flow of financial resources from developed countries to NODCs, thus, doubling the share provided by private banks during 1971–1973. Despite some changes in the direction of private bank lending overseas since 1976, the predominance of private banks in financial resource transfer to NODCs has remained relatively stable to date and barring some unlikely developments, such as a reduction in excess liquidity of the private banking sector or a turnaround in massive current account financing needs of NODCs, private bank financing of development will continue to play a major role in the years to come. This chapter reviews the development impact of private bank lending to those NODCs that have been able to tap the international financial markets and discusses ways of improving the access of those NODCs that have remained marginal borrowers or have not been able to gain entry to the private financial markets.