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Third World Fears Fallout of Stock Crash

November 02, 1987| From Reuters

MEXICO CITY — Third World nations, dependent on growth to overcome huge debts and poverty, fear the stock market slide will push the global economy into recession.

"The financial authorities of the major countries have had a big shock, and the impact of their decisions on the economy is yet to be seen," a senior Mexican monetary official said.

He saw the slump as a big test of major nations' ability to effectively coordinate economic policy, which the Group of 24 developing nation finance ministers frequently claim is lacking.

Foreign banking sources also said the stock market crash will raise pressure on negotiators in New York to resolve the eight-month moratorium by Brazil, the Third World's biggest debtor.

An immediate benefit has been a drop in prime interest rates, though this has merely wiped out a sudden jump earlier in October to the year's highs of 9.75%. Rates stand 23% above the same time last year.

Per Capita Income Decline

Third World nations, owing more than $1 trillion to commercial banks, governments and multilateral agencies, depend on exports of raw materials to industrial countries to service debts and pull out of recession.

Real gross domestic product of the major Latin American debtors is down at 1978 levels, according to United Nations figures and the 15 debt-ridden African nations have per capita income levels a third lower than in 1965, the World Bank says.

Some Third World officials fear the loss of confidence from Wall Street's 36% three-week drop will bring an inevitable fall in consumer spending, cuts in investments and a slowdown in industrial economics.

The result would be less demand for developing country exports of steel, aluminium, plastics and other materials used in making finished goods. Oil-exporting developing nations, which last year suffered a 42% plunge in their terms of trade, would see a drop in income.

But not all leaders were worried.

"We could see a drop in demand for Mercedes-Benz and other luxury items, but not necessarily for the type of goods exported by developing countries," a Mexican financial official said.

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