Third World debt is still growing.

Developing country debt is estimated to have grown to over $1.8 trillion last year, up from $1.77 trillion in 1993. During the past decade, much of this debt has been restructured--renegotiated on terms more favorable to debtor countries. Some 80 percent of the funds owed to commercial banks, as well as a much smaller share of loans from governments and multilateral institutions, has now been restructured. The trend has led some analysts to declare the debt crisis over, at least for the private banks. But the poorest nations have yet to see much relief. Their debt service payments still eat up a substantial percentage of their export revenues--some 15 to 19 percent, depending upon the measurements used. The ratio typical of the era before the crisis began in 1982 was on the order of 10 to 12 percent.

The worst debt today is that of sub-Saharan Africa, excluding South Africa. Collectively, the region's debt amounts to $180 billion, three times the 1980 total, and 10 percent higher than its entire output of goods and services. Debt service payments come to $10 billion annually, about four times what the region spends on health and education combined. The burden is choking off economic development over much of the continent.

Eastern Europe and the countries of the former Soviet Union are also heavily indebted, but the picture varies considerably from one country to another. The region's total debt rose from 161 percent of export earnings in 1986 to an estimated 291 percent last year. Russia owes over $80 billion, and the country is hard pressed to meet its obligations: interest payments in 1994 were budgeted at less than 15 percent of interest due. Poland, on the other hand, had 40 percent of its debt forgiven in a restructuring agreement last year. Half of Bulgaria's debt was forgiven in 1993.

In Latin America, restructuring has eased the burdens of three major borrowers--Mexico, Argentina, and Brazil. Peru is the region's last remaining country with significant unrestructured debt. Peru's debt currently amounts to $26 billion.

Restructuring has brought some new actors onto the scene--and changed the roles of established players. After shedding much of the "old," high-risk debt of the 1980s, the commercial banks are moving aggressively into lucrative east Asian markets, and into private sector lending in Latin America. This more selective lending has allowed American banks, for instance, to post a 17 percent increase in Third World loans over the year ending last March, and a 33 percent increase since 1990.

As private lending goes elsewhere, the poorest countries have had to rely increasingly on multilateral institutions like the World Bank and the International Monetary Fund. Multilateral debt among the lowest income countries grew from around 15 percent of total debt in 1980 to over 24 percent in 1992. Multilateral loans generally come with much stricter terms. Neither the World Bank nor the IMF will directly forgive or restructure debt, since that might jeopardize their "preferred status" in capital markets and force them to raise interest rates. Their preferred status also means that payments to these institutions take precedence over payments to all other creditors. Of the various types of external debt, multilateral loans generally have the most rigid terms.

The multilaterals do, however, participate in a form of restructuring by providing most of the financing for "Brady" bonds, used to restructure the old debt of "middle income" countries like Brazil, Mexico, and Argentina. But the bonds are not available to the poorest countries.

Organizations that aren't in the business of lending money have become involved in restructuring as well, through swap agreements. Debt swaps reduce the amount owed in return for some concession on the part of the debtor. In debt-for-equity swaps, for example, a corporation purchases a debtor nation's IOU from a bank, and then trades it for one of the country's state-owned assets, such as a steel mill or a telephone company. Debt-for-equity swaps are often part of a larger privatization strategy, especially in Latin America. While privatization may often be necessary for saving nationalized industries, many observers are concerned that indebtedness is forcing countries to part with their assets at "fire sale" prices. Between 1985 and 1992, debt-for-equity swaps accounted for nearly 36 percent of all debt conversions.

Debt-for-nature and debt-for-development swaps are intended to win government commitments to environmental and development projects. In these arrangements, a non-governmental organization (NGO) usually obtains the debtor nation's IOU from a bank at a significant discount. The NGO then typically restructures the debt by passing along some of the discount conceded by the bank, accepting payments in local currency, and investing the returns locally, to fund a national park, for instance, or a public health project. Between 1985 and 1992, these types of swaps accounted for only about 2 percent of debt conversions. But for some countries, they may already be offering significant relief: Madagascar has cut its $100 million commercial bank debt in half through debt-for-nature swaps.