THE WIDE swing in the oil market from $16 a barrel to $25 a barrel caused by the Iraqi invasion turns thoughts in Western capitals to questions of supply. In the Third World, especially the heavily indebted oil-importing countries, the chief worry is price, and for good reason. The last oil-price shock, in 1979-80, was met with stringent anti-inflation measures and tight monetary policies in the West leading to the worst global recession in 50 years, the accumulation of huge debt arrearages in less developed countries and a first-class international financial crisis.
Today, however, people who follow these developments closely agree that economic conditions are much better then they were 10 years ago. First of all, no one is expecting interest rates, at 8 percent, to reach anything like the 20 percent of a decade ago -- a rate that hamstrung the debt-paying ability of the developing countries. And while the U.S. economy is slowing down, the robust European and Japanese economies can be expected to continue to absorb LDC exports, notwithstanding a $25 barrel of oil. This is an important change, since the last time around, the United States purchased a disproportionate share of LDC exports -- nearly the entire increase in LDC sales in 1982-85. Commercial banks can also breathe easier this time, since their share of LDC debts, through debt swaps, sales and write-offs, has fallen dramatically from a threatening 70 percent to less than 50 percent, with the slack being taken up by Western governments and international institutions such as the World Bank.
Finally, a $25 barrel of oil will have a different meaning for different parts of the Third World. For oil producers such as Mexico and Venezuela, it means an added $4 billion in annual export earnings; for heavily indebted importers such as Brazil, it could mean a loss of as much as 6 percent, or $2 billion of export earnings, which will be difficult but not impossible to handle; for the poorest of the poor nations, in Sub-Saharan Africa for example, it means an increase in problems of which they have far more than their fair share. Because the rest of the world can bear this new oil price burden a great deal better this time around, we should step up to the table and devise a plan to assist those poorer nations that Iraq has hurt the most.