text: capital inflows tothedeveloping economies) theincreasing debtanddebt-service burden) theneedforadjustment measures andpolicies inboththedeveloped and developing countries) andtheapparent deterioration inthesocialsituation. 1.Highnominal andrealinterest rates 68.Owinglargely tostringent monetary andfiscalpolicies pursued ina synchronized mannerinthemajorindustrial countries tofightinflation inthe post-1979 period, interest ratesrosesharply inbothnominal andrealterms(that is,adjusted forinflation). Although nominal short-term andlong-term interest rateseasedbyanaverage ofabout4and2percentage points, respectively, from 1981to1983inthesecountries, thedecline didlittlemorethanmatchthe parallel decline ininflation. Consequently, realinterest ratesremained at historically highlevelswiththeresultthatrealinterest ratesintheindustrial countries nowstandattheaverage of4percentand6percent,respectively, for short-term andlong-term, withcorresponding realratesfortheUnitedStatesbeing atslightly higherlevels. Thehighlevelsofinterest ratesinindustrial countries havehadadirectandimmediate impactonthedebtburdenofthe developing countries. Totheextentthatthesehighinterest ratesareresponsible forthestrength ofthedollarandtheconsequential depression inprimary commodity prices, theexportearnings ofmanyofthesecountries areseriously affected. Moreover, inmanycasestherehasbeenareverse capital flowfrom developing countries thereby addingtotheirforeign exchange constraints. 2.Weakening primary commodity pricesanddeterioration in developing countries' termsoftrade 69.Pricesofprimary commodities intermsoftheunitedStatesdollarwereonthe riseovermuchofthedecadeofthe1970s,reflecting anunderlying inflationary trendintheworldeconomy. TheSUbsequent fallincommodity prices between 1980 and1982,whichamounted toabout25percentindollarterms(table111,wasdue mainlytotheeconomic recession inthedeveloped marketeconomies exacerbated by restrictive monetary policies. Thissuddenfallincommodity pricesresulted in serious balance-of-payments difficulties forthemajority ofdeveloping economies, butmadeasubstantial contribution tothereduction ofdomestic inflation inthe developed countries. Withcontinuing restrictive monetary policies beingpursued inthelatter, thecommoditY-exporting developing countries havehadtoshoulder /...A/40/5L9 English Page 30 Table 1I. Indices of market prices of prioary commodiliesin current dollars and annual changes, exported by developing countr ies (Annual change in percentage ) l9 81!982 r983 1984 ill1985 ( foreca st ) Food Of r.rhich ! Beverage crops Agrlcultural non-food Minerals (excluding cr udepetroleum) Non-ferrous base netal-s Total prlmary commodities (excl.uding crude petroleum) -I2.2-I8.6 -10.8 +I1. 3 -16 .9-r5 .8 -5.1 -14.5 +2.9 -14.0+3.3 +12.0 +3 .7.+0.8 +I). > +6.9 +3.I -9.3-7.5 -6 .7 -2.1 +4.5 +3.6 -6.5 Memorandum i tems r Itanufactures g/ Terds of trade c/ of primary comrnodities (excluding crude petroleum) Terms of trade g/ of crudepetroleufir-5. 3-2.O-4.1-2.9 +0.2 -6.5 +L7 .2-10 ,9 -2.3+10.0 -8.0+6.1 +0. 5-7 .6 -r.0
analysis: The text discusses the impact of high interest rates, inflation, and commodity prices on the economies of developing countries. It highlights the debt burden, debt-service burden, and foreign exchange constraints faced by these countries. The text also touches on the effects of restrictive monetary policies and the decline in commodity prices on the balance of payments and terms of trade of developing countries.