Developing nations will find it difficult to borrow money in the next year or two because of the depressed state of the world economy and the conclusion by many commercial banks "that they have reached their lending limits in certain countries."
This downbeat assessment of the short-term investment climate is a central theme of the annual report of the International Finance Corp., the World Bank affiliate that helps finance projects through the private sectors of developing countries.
"I don't see a drastic turnaround in the overall economic situation in the world," Executive Vice President Hans A. Wuttke told reporters in commenting on the report. "I hope I'm wrong, but we don't think that the investment climate in the industrial countries and developing countries will be the one we'd like to have."
The poor borrowing counries not only will face greater competition for funds, but also will have to pay interest premiums, or spreads, over the interest charged to more advanced nations, the report said.
But Wuttke held out the hope that, after 1983, the private sector, along with the IFC, "will be a leading factor" in stimulating economic growth in the Third World. He added that the IFC will continue to try to "convince borrowing governments to get out of certain activities and let the private sector come in." He cited petroleum exploration as one example.
IFC loans must be made to private-sector companies and be managed by them, must be "economically and commercially viable," and must turn a profit for the IFC, Wuttke said. In addition, loans must serve "the development objectives" of the host country.
More and more, countries that have been hostile to private investment, including socialist and Marxist states, "have learned their lesson, and now ask the private sector to help," he told reporters. He cited especially some countries in Africa that "didn't allow the private sector to do anything," India, Yugoslavia, and Brazil as examples of where the attitude has changed.
Over the next 12 to 18 months, commercial banks are likely to impose more rigid limits on how much they will lend to each country, Wuttke said. And where they do lend, the spreads will be rising. He noted, ironically, that, when Mexico borrowed money in international markets a few years ago, the rate it obtained was about 3.8 percent. "I don't want to guess what it would be now," he sighed.
The IFC has a total of $132 million in 15 Mexican projects ranging from tourism to mining and petrochemical production.
IFC activities in fiscal 1982, a year of "lackluster economic growth," increased only modestly -- from 56 projects last year to 65 in the 12 months that ended June 30, 1982, involving loans of $612 million. The total capital cost of the projects was $2.9 billion.
"We do not rush into investments in order to make big numbers," Wuttke said. "We have to be careful, because we don't see the world getting out of the present turbulences."
But he said that the IFC will have more opportunites after 1984. "We expect to double project volume in the mid-1980s. That's what we're aiming at, with more equity" in the total project. Of the $2.9 billion project total this year, the IFC equity position is only $245 million.