Developments in and prospects for external debt position and burden of developing countries: The case of Korea

Abstract

The delay of strong economic recovery by industrialized nations, slowed world export growth, and higher interest rates have worsened the financial situation of a number of developing countries which have relied on external borrowings to sustain current account deficits and protect economic development. Recently, well-publicized concerns over the ability to these countries to repay their considerable debt burden have been raised. To shed light on these concerns, the paper focuses on Korea—one of the heavier debt-holding countries. It describes the process through which Korea has acquired its external debt over the past decade, assesses the trends in its debt burden, and presents prospects for the period 1982–1986. Using the Korean experience, the paper shows that the most common indicators used for evaluating foreign debt burden, such as the long-term service ratio, need to be supplemented by other measurements. In a world economy characterized by short-term debts with variable interest rates, the paper suggests that an important tool in analyzing the external debt burden should be the short-term debt burden.