Excessive borrowing by state-controlled enterprises

State-controlled enterprises have borrowed significantly in domestic and foreign credit markets, usually with the government as guarantor, whether explicitly or implicitly. Such guarantees create contingent liabilities, although lack of accounting discipline means that they often only become apparent at times of crisis, thus aggravating that crisis. Recent experience in many countries has made it painfully clear that a government's contingent liabilities can have serious repercussions if the financial situation of one or more of the enterprises deteriorates. Partly because of such guarantees, borrowing by state-controlled enterprises has added significantly to foreign debt. The direct borrowings of such enterprises accounted for more than 20% of total foreign debt in 99 countries as a group and grew faster than the debt of private borrowers during 1970-86. The total contribution of such enterprises is however greater than this suggests because governments passed much of their own foreign borrowing on to such enterprises. Thus they account for more than half the outstanding external debt of another of major debtor nations.