ABSTRACT
This chapter examines the growth of Central America's external debt and the results of various debt renegotiations up to 1986. It explores debt over the period 1987-1994 and assesses the ability of the region to meet its external obligations. Although the countries of Central America have pursued relatively conservative policies with respect to external finance, the deteriorating terms of trade, increased burden of debt service and net outflow of private capital experienced in the 1980s have led to an unprecedented foreign exchange crisis. The breakdown of publicly guaranteed debt was approximately one-third multilateral, one-third bilateral and one-third private. For the region as a whole, debt service represented 39 percent of export earnings and 39 percent of public expenditure. The lengthy process of renegotiation of the debt with international private banks was resumed in 1986. Debtor countries might attempt multilateral negotiations to eliminate some of the additional costs resulting from the current arrears.
