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Commercial loans

Commercial loans are loans from banks and other financial organisations, usually in the developed world. Many developing countries saw borrowing as a way for them to fund development. Between 1970 and 1975 bank loans to developing countries grew from 3bn to $12bn and as their balance of payments position improved later in the 1970s with rising commodity prices, they continued to borrow extensively. However, in the 1980s and 1990s higher interest rates and falling commodity prices meant that many defaulted on their loans and many other loans had to be re-scheduled.

So commercial loans are another possible growth strategy for developing countries, but past experience has revealed the potential problems with this strategy if it is relied on excessively, and the problems of indebtedness that may be caused (see also section 5.3.4 on indebtedness).