The region's debt represents about 30 percent of all debt of low- and middle-income countries, down from 35 percent in 1988. Within the region, Mexico is estimated to hold 27 percent of outstanding debt, followed by Brazil (25 percent), Argentina (16 percent), and Venezuela (5 percent).

Mexico prepays official debt. An exceptional $7.5 billion debt prepayment by Mexico to its official creditors helped raise debt service as a share of exports to about 30 percent for the region in 1996, up from 26 percent in 1995. The region's debt stock as a share of exports fell, however from 212 percent in 1995 to an estimated 203 percent in 1996 (compared with more than 300 percent in 1988). Country experiences varied widely, with estimated debt to export ratios within the region ranging from 26 percent (Suriname) to 880 percent (Nicaragua).

Poor countries achieve debt reduction. In 1996 Honduras and Guyana obtained Naples terms agreements from their Paris Club creditors; similar agreements were concluded with Bolivia, Haiti, and Nicaragua in 1995. In 1996 Nicaragua also reached agreement with the Russian Federation on a debt restructuring deal that provides for 90 percent forgiveness on its ruble debt. This deal followed the buyback of commercial bank debt in 1995, under which Nicaragua extinguished more than $1 billion of principal at a cost of 8 cents on the dollar. Nicaragua's debt is estimated to have been reduced to about $6 billion in 1996, from $11 billion in 1994. Bolivia, Guyana, and Nicaragua, are all classified as heavily indebted poor countries.

Private capital flows rebound. Private capital flows into the region increased 37 percent in 1996, following relatively weak performance in 1994 and 1995. Net flows from commercial banks fell from the high levels of 1995 but were more than compensated for by higher inflows from bonds, foreign direct investment, and portfolio equity, as confidence in the region recovered.

Net bond flows reach record high. Net flows from bonds rebounded from their low levels in the wake of the Mexican peso crisis, reaching a record $28 billion in 1996. Activity was up in all the major economies of the region, with Mexico and Argentina accounting for two-thirds of the inflow. Confidence started returning to the bond market in the second half of 1995, led by the most creditworthy countries. In January 1996 Mexico successfully issued a $1 billion five-year global bond issue, its first sovereign issue since 1993. The proceeds of a $6 billion sovereign floating rate note were used later in the year to prepay 1995 borrowings from the U.S. Treasury and the IMF.

Foreign direct investment picks up again. Foreign direct investment in Latin America and the Caribbean is estimated to have increased by more than 13 percent in 1996, after falling slightly in 1995. The increase was seen in all the major economies of the region. Argentina, Brazil, and Mexico, each accounted for about 20 percent of the total; Colombia and Peru also received significant amounts. The region accounted for about a quarter of foreign direct investment flows into low- and middle-income countries in 1996.

Portfolio equity flows double. The recovery of confidence in the region is expected to have attracted more than $16 billion in net portfolio equity inflows in 1996, up from about $7 billion in 1995. Portfolio equity flows nevertheless remain well below the record level of $27 billion reached in 1993. Brazil, Mexico, and Peru account for about 85 percent of portfolio equity inflows. In Argentina the lack of blue-chip stocks outside the oil and gas sector has limited investor diversification. The region's share of portfolio equity flows to low- and middle-income countries increased from about a fifth in 1995 to about a third in 1996.

Aid flows fall. Official development assistance fell from $5 billion in 1995 to an estimated $3.6 billion in 1996, with Bolivia, Haiti, and Nicaragua receiving the largest shares of aid.