Oil Plunge Indirectly Aids Developing Nations That Import Oil / Greater Savings Realized from Impact on Industrialized World

By Barnaj. Feder, N. Y. T. N. S. | THE JOURNAL RECORD, March 4, 1986 | Go to article overview

Oil Plunge Indirectly Aids Developing Nations That Import Oil / Greater Savings Realized from Impact on Industrialized World


Barnaj. Feder, N. Y. T. N. S., THE JOURNAL RECORD


NEW YORK - Most developing nations that import oil will gain more from the impact of falling oil prices on the industrialized world than from direct savings on their own fuel costs, bankers and economists say in assessing the effects of the price slump on the developing countries.

""The real issue is the impact of the price cuts on the growth rates in the industrial world and on interest rates,'' said Christine Bindert, a senior vice president at Shearson Lehman Brothers Inc. who has worked as an economic adviser for several Latin American governments.

To be sure, developing nations - just like the United States and other industrialized countries - cannot know just how much they will benefit from falling oil prices until they see how far the price decline goes and how long it lasts.

Nonetheless, economists estimate that the decline in prices should add between 0.5 percent and 1 percent to the growth rate of the economies of industrialized nations this year. That should in turnincrease demand for Latin American, African and Asian manufactured goods and commodities.

It may also ease pressures in Congress and the European Economic Community for protectionist trade measures that limit the export of a wide variety of goods from developing nations.

At the same time, the decline in oil prices lowers inflation rates, which could lead to a fall in interest rates. How much that could help the developing countries varies, depending on how much of their debt is owed to commercial banks, as opposed to governments and international agencies. Commercial debt carries a floating interest rate tied to the rates big banks charge each other for money,while noncommercial loans are usually at fixed rates.

Thus, countries with large commercial bank debt could save hundreds of millions of dollars in interest payments if lower inflation caused interbank rates to fall. By contrast, those whose debts aremostly to other governments and agencies, such as the International Monetary Fund, will benefit less.

Some of the same benefits accrue to developing nations that are net exporters of oil. However, the savings on interest and the economic stimulus do not entirely compensate for the lost revenue, according to most economic calculations.

Few major developing countries are heavily dependent on oil imports. The largest importer among developing nations is Brazil, which has sharply cut its needs in the last decade by substituting domestically produced alcohol for some of its gasoline demand and investing heavily in domestic oilfields.

Brazil's $7.47 billion petroleum import bill in 1984 amounted to about 49 percent of its total imports, according to the IMF. Banking sources say that bill was cut to slightly more than $6 billion last year, as the country met 56 percent of its oil needs domestically. Brazilians predict they will meet 74 percent of their oil needs this year, and cut the import bill to $3 billion.

While some economists predict that falling oil prices could annually save Brazil billions of dollars, they point out that the savings will be considerably less for other oil-importing countries. …

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