Most analyses of the debt crisis of the 1980s maintain that debtor countries were paying interest rates approximately equal to the world risk-free interest rate plus a small spread, as most loans were at floating interest rates. This view emphasizes how the rise in real interest rates in the early '808 increased the burden of debt service for all highly indebted countries (HICs).

The data on interest payments by HICs, however, show that this description fits some countries quite well and others not at all. Figure 1 shows the average interest rate on long-term debt paid by nine of the largest debtor countries in 1973-89 and LIBOR, the usual measure of the international risk-free interest rate. The data are obtained dividing interest payments by the stock of debt outstanding, and correcting for interest arrears, hence they reflect all contractual obligations towards external long-term creditors, as opposed to actual payments'. Turkey, Indonesia, and the Philippines were charged rates systematically below LIBOR for most of the period under consideration, while other countries, such as Mexico and Chile, had to pay a positive spread2. Differences in the interest rate, of course, imply that countries with similar inflows of foreign capital end up with quite different debt service obligations, and that high-interest rate countries must make larger transfers of resources to their creditors before their debt statistics start to improve.

Hence, a large cross-country variation in interest rates casts some doubts on the distinction between 'good' and 'bad' borrowers, 'The Turldsh interest rate in 1979-80 is not corrected for arrears, as the size of the arrears could not be determined.