Latin Debtors Seek New Approaches. GLOBAL MARKETS
DEBT is a pain - and Latin nations are saying they have reached their limit of tolerance. That is why Venezuela plans to suspend principal payments on most of its $26 billion in foreign bank debt for three months beginning next week. It is why many experts on the debt crisis say 1989 could see major changes. And it is why, despite improving conditions on the part of banks with loans to poor nations, President-elect Bush has indicated he is willing to look at a new approach.
``A major change should occur this year,'' says Javier Murcio, a specialist on Latin American economies at Data Resources Inc. of Lexington, Mass. ``It might not be really close to happening, but I think there is something going on behind the scenes.''
The people to watch, besides Mr. Bush, are incoming Secretary of State James Baker III, Secretary of the Treasury Nicholas Brady, and the new leaders of Venezuela and Mexico, Carlos Andr'es P'erez and Carlos Salinas de Gortari, respectively.
Mr. P'erez, the Venezuelan president-elect, is most outspoken on the debt issue. He is an economic nationalist, too, having supervised the takeover of the Venezuelan oil industry during his first term as president in the 1970s. P'erez told the Monitor last year that the overhang of debt he and other Latin leaders have inherited from their predecessors presents ``intolerable and irrational'' repayment conditions and is ``a very direct threat to our democracies.''
Third-world debt is estimated at $1.32 trillion. Latin nations owe $420 billion.
Last week P'erez paid a visit to Mr. Salinas. Venezuela and Mexico have their oil industries in common and thus have similar interests in seeing higher oil prices. P'erez said he and Salinas agreed to continue talks on the debt with other Latin American heads of state. Late last week, P'erez visited President Jos'e Sarney of Brazil. He is due to meet Ra'ul Alfons'in of Argentina and other Latin leaders next month at the time of his inauguration.
Despite his lobbying, P'erez is not confrontational in his approach. He does not talk about debt repudiation. That should help him and other Latin leaders deal with creditors, since they are not in a particularly strong financial position. US banks have worked hard over the past two years to reduce their debt exposure and thus have the upper hand in debt negotiations.
William Seidman of the Federal Deposit Insurance Corporation told the House Banking Committee last week that regional US banks have ``put the LDC [less-developed countries] situation behind them.'' But Rep. Henry B. Gonz'alez (D) of Texas, the committee's chairman, has called for the Bush administration to develop a policy quickly, and characterized the debt situation as ``a growing crisis.''
What is needed, say many specialists, is a new approach that liquidates some of the chronic burden of debt of developing nations. P'erez says that if the debt problem is not settled soon, the severe economic difficulties of Venezuela, Brazil, and Mexico could extend to other countries.
Economist Murcio says one of the most interesting new approaches was one that appeared in the Wall Street Journal last week. Written by Rudiger Dornbusch and Franco Modigliani of the Massachusetts Institute of Technology, this is a plan under which debtors would make payments to banks in local currency (pesos, for instance).
Banks would then use the money to buy local enterprises. What these properties earned could be converted into dollars - or the properties could be sold to nonresidents. At any rate, debt payments would not leave the country directly.
Although banks would object to this, it would be better, the two economists say, than if the debtors had to default on some or all of their payments. And after perhaps a decade, the money could be gotten out.
Dozens of other debt-relief plans have been proposed in the past few years. One way or another, some group will pay the freight - most likely, taxpayers or bank shareholders. For most of the 1980s, it has been the debtors. They are saying they are in no condition to go on this way, especially if economic conditions turn gloomy through rising interest rates or a recession.
Big Latin Nations
What they owe How Much of Their
(in billions of dollars) Export Earnings go
to payments Argentina $59.6 42% Bolivia 5.7 44 Brazil 120.1 28 Chile 20.8 27 Colombia 17.2 17 Ecuador 11.0 33 Mexico 107.4 28 Peru 19.0 27 Venezuela 35.0 22 Source: The World Bank