U.S. URGES BANKS TO DEVELOP NEW 3RD WLD FINANCE
The United States this week signaled
it is pressing commercial banks, increasingly disenchanted with
providing large cash loans to debtor nations, to develop new
ways of financing that will prove more acceptable to both
sides.
    Heading off challenges to its Third World debt strategy,
U.S. officials also say they think concessions should be made
to debtors that enact reforms speeding inflation-free growth.
    In particular, they stress new techniques that shift the
emphasis from debt to equity and shave interest rates.
    "The strategy is sufficiently broad as an initiative or
concept that there can be additional emphasis such as in
debt-equity swaps and that sort of thing," a Reagan
administration official said of the slow pace of commercial
bank lending to the Third World.
    "The debtors have been performing well...some people argue
that taking 1-1/8 pct down to 13/16 pct is debt forgiveness.
Well if that's what it is, fine. What it really is a narrowing
of the spread that could be charged on new money," the official
said.
    This week, therefore, U.S. officials signaled their backing
for a novel proposal by the Philippines that called for partial
payment of interest in tradeable investment notes.
    On Tuesday, officials said Treasury Secretary James Baker
told Secretary of State George Shultz the idea was a creative
one and signaled his approval to Philippine Finance Minister
Jamie Ongpin later that day. An administration official told
Reuters this week the Philippines' proposal to partially pay
interest with investment notes instead of cash should be
considered seriously by the banks. An agreement with the banks,
officials now say, is expected soon.
    "New bank lending has been slow in materializing but the
fact of the matter is there have been 70 billion dlrs in bank
loans restructured, which is a form of extension of credit. As
you know, there's been 8.5 billion dlrs in new money," said the
official, who plays a key role in keeping the plan afloat.
    The plan was launched in October 1985 by Secretary Baker
and called on commercial and multilateral banks to lend 29
billion dlrs in the subsequent three years to major debtors
undertaking reforms that promoting economic growth.
    But it has taken almost six months to complete the
syndication of a 7.5 billion dlrs loan to Mexico, which has
created deep misgivings here about the liklihood of such large
straight cash loans being assembled ever again.
    U.S. officials want the banks not only to consider swapping
their debts for equity in local corporations -- a development
that has already met with success in Chile and Mexico -- but to
pin loans on specific projects, finance trade and invest
directly in debtor country private sectors.
    These forms of lending, they say, give the banks a greater
stake and more economically secure return on investment.
    In a major challenge to the U.S. plan, Brazil last month
declared a moratorium on interest payments and followed it up
with a world tour by officials seeking a political way out of
its 109 billion dlr debt burden.
    The country is beset by a falling trade surplus and
dwindling reserves endangering its ability to service its
foreeign debt, at 109 billion dlrs the Third World's largest.
    One official attending the Washington talks with Brazilian
Finance Minister Dilson Funaro said "they've come in here now
and said "Look, we're out of money, help us," but they haven't
come in with a plan. And they've gone all over the world, and
at every stop they've been told the same thing."
    The official said Brazil would have to enact a credible
economic program, either in consultation with the World Bank or
the International Monetary Fund, to cool its overheated economy
before commercial banks would begin negotiations.
    As a result of the Brazilian action, private banks and
major debtor nations redoubled their efforts to reach
agreements stretching out debt repayments.
    For its part, the administration has signaled its strong
support for new techniques that in some cases effectively
amount to interest rate concessions for major debtor nations.
    It pressed the banks to allow Chile to make annual instead
of bi-annual interest payments, speeding an accord.
    Administration officials, who asked not to be named, have
also debated whether to allow banks greater flexibility in
building up loan loss reserves against Third World loans.
    The debate centers on a rule, known as FASB-15, under which
banks experiencing delayed interest payments on real estate
loans need not set aside reserves against debt principal if it
is believed payments will resume.
    More recently, the rule was extended to cover farm and
energy loans and Senator Bill Bradley, a New Jersey Democrat,
has suggested it should be extended to Third World loans.
    Bradley is prominent among Congressmen urging that
provisions for debt relief be attached to tough new trade
legislation now being considered on Capitol Hill.
    But the officials said the debate has been inconclusive.
 Reuter
