Deteriorating terms of international financial loans to vulnerable countries

This results in dramatic shifts in the debt structure from concessional loans to non-concessional loans with harder lending terms. Developing countries, in particular, are exposed to deteriorating terms of borrowing, including sudden increases in interest rates paid on long-term debts, particularly commercial loans. In addition grace and repayment periods may be reduced.

Besides trade, the cost and availability of international finance are the main external determinants of the economic performance of developing countries. The debt crisis has had a profound impact. Developing countries have traditionally been net importers of capital; their domestic savings are generally insufficient to meet their investment needs. The availability and cost of such external finance depend mainly on the overall size of the pool of exportable savings in capital-surplus countries and on the competing claims on that pool. During the 1980s both moved against the developing countries.