PHILIPPINE DEBT TALKS FINELY POISED, BANKERS SAY
Debt talks between the Philippine
government and its bank advisory committee were delicately
poised after a brief meeting between the two sides today,
bankers and sources close to the Philippine delegation said.
    "We had a businesslike meeting and made good progress," a
banker said. "The banks are anxious to come to an agreement."
    But bankers were reluctant to predict whether the talks
would end successfully. Caution was also evident in the
Philippine camp. "We feel the ball's in the banks' court," one
source said. The two sides will meet again on Friday.
    The talks, in which the Philippines is seeking to
reschedule about 9.4 billion dlrs of debt, are now dominated
by a discussion of the innovative proposal made by finance
minister Jaime Ongpin to pay part of the country's interest
bill in Philippine Investment Notes, PINs, instead of cash.
    Manila wants to pay the London Interbank Offered Rate in
cash and to issue PINs in respect of the margin above LIBOR.
    The banks rejected the original PINs proposal last Friday,
but Ongpin presented a revised proposal on Monday which sought
to satisfy the banks' objections by guaranteeing that the notes
would yield 7/8 pct over LIBOR in cash.    
    The banks have apparently yet to pass final judgment on the
new proposal.
    Senior Reagan Administration officials expressed warm
support for the PINs proposal this week, which gave Ongpin hope
that the banks would embrace the idea.
    But the banks are still being circumspect, weighing
possible accounting consequences as well as considering the
precedents that they would set if they agreed to PINS.
    One of the  main architects of the PINs proposal, U.S.
lawyer Lee Buchheit, is adamant that the banks have nothing to
worry about.
    "To the extent that it's a precedent, it's a precedent to
be encouraged," Buchheit, a partner with Cleary, Gottlieb,
Steen and Hamilton, told a debt-equity swaps conference
sponsored by Euromoney magazine.
    Under the proposal, banks would sell the dollar-denominated
PINs at a discount to multinational firms which would convert
them into pesos at face value to fund government-approved
equity investments in the Philippines.
    In effect, international firms would be paying part of
Manila's interest bill, allowing the government to conserve
much-needed hard currency.
    One of the beauties of the scheme, according to Buchheit,
is that it widens the scope of third-world debt negotiations,
which have been confined to debtors and creditors for the past
4-1/2 years.
    "There's another pool of cash at the table now," he said.
    David Mulford, Assistant Secretary of the U.S. Treasury,
told the Euromoney conference that ideas such as PINs should be
part of a "menu" of options available to banks instead of pure
new-money packages.
    He said the difficulty of syndicating Mexico's 7.7 billion
dlr loan package shows that new approaches must be encouraged.
    "We must face the fact that greater flexibility in devising
new money packages may, in effect, be essential to future bank
syndications," Mulford said.
    In an unusually frank comment about the Mexican deal, he
said that dissatisfaction with Mexico's economic program and
criticism of communication and coordination within the bank
syndicate had prompted a number of banks to refuse to
participate in the loan.
    This refusal "for a time appeared to jeopardize the
prospects for successful agreement with the rest of the banks,"
Mulford said.
    The Mexican package is now due to be signed on March 20,
but bankers said the U.S. clearly feels the need to breathe new
life into the financing process, especially with crucial
negotiations with Brazil, about to start.
    The banks for their part insist that they are more than
willing to discuss Mulford's "menu", and say it is the debtors
that need to be more flexible. For example, they say financing
talks with Argentina are proving tough because Buenos Aires
dislikes the debt-equity schemes and onlending provisions that
the banks are promoting. But whether the banks are ready to
endorse the PINs concept right away still hangs in the balance.
 Reuter
