ABSTRACT
This chapter examines the importance of bank lending as a source of foreign exchange to LDCs. In looking at creditworthiness criteria used by banks in their lending to countries, one is immediately struck by the similarity to domestic credit assessment. In country lending “earnings” is replaced by exports and “managers” by finance and economics ministers, the planning agency, and the central bank. The banker also tries to determine the ability of the managers to run the business efficiently over the period of the loan at least. Interest rates are quoted as percentages above mostly the London inter-bank offered rate, but also the New York or the Japanese prime rate. For net oil importers and manufacturers the banks’ share in 1981 was approximately 90 per cent and 68 per cent respectively. The banks’ role in trade financing and short-term balance of payments support, while unpublicised, has been of vital importance to many poorer countries facing liquidity problems.
