Top banker says teamwork has put overseas loans on a firmer footing
The international debt problem of the developing countries has become more severe in the last five months. But solutions to the crisis ''are far more in place now.''
That's the assessment of Richard D. Hill, chairman of the executive committee of the First National Bank of Boston.
This bank has loans in Mexico, in Brazil, and in Argentina (bankers call them the M-B-A countries) which amount to something less than $250 million each, and thus Mr. Hill is interested, to say the least, in their external debt problems.
Some observers have expressed concern that some of these major debtor nations might go bankrupt and throw the world's financial system into great turmoil. Mr. Hill does not see that as likely. In an interview, he noted that the International Monetary Fund (IMF) now has agreements providing for loans to each of the M-B-A nations as part of austerity packages aimed at returning them to balance in their international payments.
Moreover, the first stage in the restructuring of their massive external debts has been accomplished. This stage provides for continued payment of interest, plus additional funds to cover payments deficits.
''The free world banks have responded pretty well,'' this leading international banker said. ''We have to do more work to be certain that banks that have been in the habit of lending to LDCs (less-developed countries) continue to do so. World-class banks understand this. But the regional banks and smaller banks probably have to be worked on a bit.''
When a country gets into severe international payments difficulties, the commercial banks involved form a group to negotiate with that nation on how to restructure its outstanding loans. Usually the group is led by one or two major banks with a large amount of loan ''exposure'' in the nation. Underneath these lead banks are seven or eight other large banks. These large banks then communicate with regional or smaller banks that have also made loans in the nation.
The lead bank or banks will reach a deal on the total amount to be provided a nation. This will be divided up among the banks in proportion to their current exposure. The lead bank will telephone or wire other members of the banking group telling them what additional lending they are expected to make. They will set a deadline for a reply. Each of the larger banks will be responsible for ''shepherding'' a number of smaller or regional banks. If they don't get an affirmative reply on the new money from one of these banks, its executives are likely to get a call saying something like, ''We haven't heard from you. Is everything all right,'' Mr. Hill noted.
''It is sort of the way you organize a United Fund drive,'' he added.
All the ''big players'' are now in place on the loans to the M-B-A nations. ''Most banks have responded in good faith,'' Mr. Hill said. But some smaller banks have been questioning the size of the loans they are expected to make, considering their present exposure.
If one bank does not make an additional loan, other banks in the group must cover that amount to assure the nation of the funds it needs to remain solvent. So banks put pressure on recalcitrant banks.
The principal source of pressure ''is almost moral suasion,'' Mr. Hill said. ''It is very much to the advantage of all of us to have the financing completed if it keeps the country in the marketplace. It is not fair to have one bank hide behind the others.''
Beyond that, if a bank fails to take its share of a new loan, it may find the nation involved will put pressure on it by refusing to do any banking business with such a bank.
Citing the case of Mexico, Mr. Hill asked rhetorically: ''Do we ever want to do business in Mexico again? Do we want to write off our business there? It's a terribly important nation. If they opt out now, they will be opting out for a long time into the future. They won't be offered positions in future loan syndicates.''
At times, he continued, banks scramble for places to put their money. By refusing to extend further loans to a nation, they may find they have shut off that potential market for placing loans for ''quite a long time.''
Some have accused the commercial banks of being ''imprudent'' in their loans to the developing countries. But, Mr. Hill says, much as in the domestic banking business, commercial banks have branches or representatives in foreign nations letting private companies or governments know money is available - ''We are anxious to do business.'' But the enterprises or governments request the funds. ''I don't think it works in the way our critics say - that we force our money on unsuspecting countries. We have been trying to meet their stated requirements.''
Mr. Hill does hold, however, that some banks deserve ''some criticism'' for the proportion of their capital they have risked in one country. ''There should be tighter limits on loans to one country,'' he said.
Nor does he accept the criticism that the IMF or the US government is ''bailing out'' the commercial banks by helping developing countries in trouble. Rather, he says, the commercial banks are putting more money into these countries.