Flight of Capital Lies at Root of Latin America Debt Crisis
WALTER WRISTON, the retired chairman of Citicorp and a man sometimes called ``father of the Latin debt,'' says he believes the United States government should not get involved in debt negotiations. ``I don't see any good reason why the US taxpayers should be asked to bail out the commercial banks,'' said Mr. Wriston in an interview in his office at Citicorp Center.
Although Wriston calls the Brady plan ``a constructive contribution,'' he says the fundamentals of the debt situation have become obscured. ``There has been a campaign mounted to make the debt crisis the fault of the United States of America and people like Jeffrey Sachs (a professor at Harvard), who are paid lobbyists for Latin America are represented as academics with objective views.''
To Wriston, the ``fundamentals'' include:
The total debt service as a percentage of gross national product for Latin debtors is about 4 percent. ``Four percent of your GNP does not cause riots in the steet,'' Wriston says.
The percentage of debt service to the budgetary expenditures of Latin borrowers is about one-sixth of their total budget.
The flight capital from Latin America exceeds the total debt by a large amount. ``The World Bank lent $150 million to Argentina in December or January. That was all on deposit in a Miami bank in 10 days,'' Wriston says. ``If the flight capital came home there wouldn't be a debt crisis.''
The former Citibanker believes the model for Latin America ought to be Chile, even though its government is blamed for human rights abuses.
``But the facts are that the Chilean people brought their capital back and paid down their debt. They have a real growth rate down there of a very high amount and they did it by privatizing a very inefficient bunch of government operations, and opening their markets.''
Wriston calls the Baker plan ``brilliant,'' since it bought five or six years of time for the banks to strengthen their balance sheets and build their reserves. ``It gave the countries involved a chance to reform, although most of them haven't.'' Today he describes the banking system as ``strong.''
Wriston says he applauds Brady for tackling a difficult problem. But he does not believe the Brady plan will be successful unless the countries involved do long-term reform of their own economies.
``Everything I know about capital can be said in one sentence: Capital goes where it is wanted and it stays where it is well treated,'' he says.