BRAZIL SEEN AS VANGUARD FOR CHANGING DEBT STRATEGY
Brazil's hard-line debt stance, though
meeting creditor resistance, is boosting political initiatives
in Latin America aimed at broadening the global strategy,
regional debt officials and economic analysts say.
    "Now more than ever it is clear that Latin America cannot
pay, under present conditions, without sacrificing growth,"
Peruvian President Alan Garcia said, referring to Brazil.
    And, as debtors and creditors prepare for their annual
meeting at the Inter-American Development Bank in Miami next
week, the region's debt crisis is clearly coming to a head.
    Around 200 billion dlrs in commercial bank debt have been
rescheduled since 1983, with interest rate margins now below
one pct, multi-year accords a norm and no financial crash in
sight, but a lasting solution seems no nearer.
    Virtually all Latin American leaders backed Brazil's
suspension of interest payments on 68 billion dlrs of private
bank debt last month, though prospects of a chain default are
still remote.
    Mexico, Colombia, Argentina and others rejected such action
and Mexican finance minister Gustavo Petricioli merely said,
"Brazil is having problems we are sure will be temporary."
    But Brazil's action has had an impact on other debt
negotiations, speeding agreement for Chile and Venezuela last
month and influencing current talks with Argentina.
    Pressure for new solutions has built up on several fronts,
with the Philippines joining Brazil in seeking interest relief
and Ecuador announcing force majeure on debt payments following
a serious earthquake.
    Private banks are being increasingly urged to renew lending
and accept innovative repayment schemes, not only by debtors
but also by official agencies which have stepped up their own
credit flows as part of the U.S.-inspired plan.
    One Latin American debt official said he saw the Brazil and
Ecuadorean announcements as spurring moves by other debtors to
link debt service payments to macroeconomic indicators such as
export earnings, GDP or raw materials prices.
    Despite this, debtor countries continue to accept the
case-by-case approach, and Cuba's call for a joint negotiating
front is not being promoted by Brazil or even defended by Peru,
the region's flag-bearer in unilateral payment decisions.
    "Each nation must negotiate its debt independently,
according to its own needs," Brazilian foreign minister Ramiro
de Abreu Sodre said in Caracas at the weekend.
    Venezuela's rapid agreement with its creditors, soon after
Brazil's move, had been seen by the political opposition as a
betrayal of debtor solidarity, but de Abreu praised the
Venezuelan negotiators for achieving a favourable deal.
    Argentina, Bolivia, Costa Rica and others are also pursuing
normal negotiations with creditor banks, while at the same time
pressing hard for better terms, particularly lower interest
rate spreads. Latin American officials say that while the debt
should be negotiated case-by-case, their governments are
promoting a general framework for talks based on growth and
development priorities, lower interest payments and new
financing.
    "The Brazilian and Ecuadorean experience shows orthodox
solutions to debt cases don't work," said a senior Peruvian
government official responsible for debt affairs.
    He saw a growing likelihood that other countries would
follow Peru's action in setting a 10 pct debt payment limit in
the face of trade and other factors beyond debtors' control
such as minimal bank lending.
    These factors have contributed to a 130 billion dlr net
outflow from Latin America in the last five years, and
Brazilian Finance Minister Dilson Funaro says Brazil alone paid
back 45 billion dlrs in this time and received just 11 billion
in loans.
    Latin American debtors feel they have complied with their
side of the bargain, slashing public spending, devaluing
currencies, cutting inflation, privatizing state enterprises
and introducing debt equity schemes.
    Brazil, as the region's biggest debtor and its most
diversified economy, has now apparently adopted the principle
that a tough position with its creditors will avoid a more
serious crisis later on.
    "We are negotiating so that the debt question should not be
one of continuous crisis," Funaro told a conference in Rio de
Janeiro this week.
billion dlr debt burden this year are slim, with coffee prices
plunging, oil prices up but still well below 1985 levels and
interest rates beginning to rise.
 Mexico expects one to two pct growth instead of the two to
three pct projected earlier, and inflation near 80 pct after
105 pct last year.
    Brazilian officials expect growth of only two pct after
eight pct last year and a 30 pct drop in the projected trade
surplus, while independent estimates put inflation at 200 pct.
    Political and economic analysts in Brazil believe the
payment suspension will give new impetus to tackling the
regional crisis though they expect protracted negotiations, a
view echoed by senior international bank officials.
    Some banks, including Citibank, Morgan Guaranty and Bank of
America are already preparing to downgrade their Brazil loans.
    Brazil's refusal to accept an IMF program, a condition set
by many banks for new lending, meanwhile reflects the view of
most Latin American governments that equate the Fund with
recession. But Brazil and Venezuela are the only countries in
the region to have rescheduled debt without an IMF program.
 REUTER
