The growth of international bank lending has slowed down over the past year, particularly, although not exclusively, to the less developed countries (LDCs). New credit announcements were very low early in 1983 although a considerable amount is being lent in association with rescheduling agreements. Increased financial pressures on LDCs have led to a sharp decline in their imports of goods and services, and, as LDCs account for around 20% of OECD exports, this has further weakened the economies of the industrialised world and was a significant factor behind the decline in world trade last year.
A number of international gatherings have stressed the importance not only of avoiding an abrupt contraction in the flow of finance to LDCs, but of ensuring, through trade liberalisation and world economic recovery, adequate growth of export markets particularly for those developing countries who are adjusting their domestic economies under IMF programmes. A major development helping to ease the financial pressures on the non-oil exporting LDCs and supporting activity in the industrialised world has been the decline in oil prices.
In the foreign exchange markets, sterling weakened in the first three months of 1983 but, by the end of May, had recovered about three-quarters of the fall since last November. In effective terms, both the dollar and the yen were more stable than in recent years. The EMS was realigned in March.
The role of intervention in the foreign exchange markets was the subject of a report published in April which concluded that intervention had been an effective tool particularly in influencing exchange rates in the short run, that it had a more durable impact when combined with domestic policy changes, but that it did not allow countries to meet exchange rate objectives inconsistent with fundamental economic trends.
International financial developments