Inadequate diversification of loans to vulnerable countries

An ability to diversify among transnational bank lenders and other borrowing sources is a key element in improving the bargaining position of a developing country. This ensures more reliable access to international credit and private capital markets and more competitive terms for loans. Little systematic conceptual and empirical work exists on the way in which developing countries can maximize their negotiating capability when borrowing from transnational banks. A developing country's ability to diversify among lenders and to obtain better costs and other terms of credit depends on three overall economic conditions at the time of borrowing: (a) the general supply and demand for loanable funds in international capital markets; (b) the country's creditworthiness (debt level and debt-servicing capacity); (c) the competitive structure of the global banking industry and the motivations behind the external lending of individual transnational banks. All three conditions change over time. The most essential ingredient for developing countries is detailed current information on each condition. Such information is, on the whole, lacking at present.