ABSTRACT
The reasoning behind the proposal is that investors are primarily concerned with risk aversion. By having LDC borrowing guaranteed by the rich countries, risk is minimized and repayment is assured. While banks have extended loans to several countries classified as the “least-developed” of LDCs, their aggregate contribution to the external financing of this sub-group has been small, amounting to only $1 billion of the $50 billion borrowed by all non-oil LDCs in 1981. While the international banking system has undertaken the bulk of the burden of providing the external financing needed for sustained growth in the middle-and high-income developing countries, the traditional, bilateral aid donors have failed to respond similarly to the needs of those countries which are in greatest need of concessional assistance. Guarantees have been used for centuries in banking but normally as a secondary form of support and not as the primary consideration.
