Prospects; Brady’s Debt Plan Debuts
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LEAD: In a recent speech, Treasury Secretary Nicholas F. Brady outlined a new plan for third world debt relief. It calls for additional lending as well as increased use of debt-for-equity swaps. It also advocates converting some of the $280 billion that debtor countries owe to private banks into low-interest bonds. In a recent speech, Treasury Secretary Nicholas F. Brady outlined a new plan for third world debt relief. It calls for additional lending as well as increased use of debt-for-equity swaps. It also advocates converting some of the $280 billion that debtor countries owe to private banks into low-interest bonds. Reaction to the plan has been mixed. Four experts give their views. Jorge Casteneda Graduate professor, National University of Mexico, and co-author, ”Limits to Friendship: The United States and Mexico.” With respect to Mexico, the plan only works on the $70 to $75 billion owed as private debt to the banks. Suppose with the plan you get a 20 percent discount on that debt - which I am not sure you could get since banks won’t give all the discount to the debtor country. Then you would have drop of about $12 billion in the debt. This would reduce debt-service payments by $1 billion a year. That’s not bad, but Mexico pays $11 billion a year in debt service, so it is really only 10 percent in relief. And that is if all the banks go along. The plan is also regionally loaded. The smaller U.S. banks with loans to the third world will be inclined to go along with the plan. But the larger banks won’t. So the plan won’t even cover all of the $70 to $75 billion of Mexico’s debt, only about $30 to $40 billion. James Robinson 3d Chairman, American Express Company. The plan is a positive development and a beginning. Forty years ago, George Marshall set forth the Marshall plan and he left it to Europe to work out the details of the plan. Brady’s speech was similar - a beginning. My biggest concern is that because you’ve got so many players - banks, creditors, countries - a framework has to be put in place for some central leadership to make the plan happen. The financial techniques to deal with the debt are plentiful. The question is one of getting the political will in place and then the central management. One element my own debt plan addressed was that of central leadership. Shafiqul Islam Senior Fellow, Council on Foreign Relations. The plan is a step in the right direction. We started off with an approach that said new money but no debt relief. Then, after 1987, we had the menu approach - voluntary market-based debt reduction. Now we’re at the stage where debt reduction is the main course and new money the appetizer. It’s not clear to me that a gradualistic, muddling through approach will work. But some banks, like Citicorp, will love the plan. It will allow them to have more business. Trading in third world debt will boom, and it will make a lot of money for Citicorp. Japan has a role in the plan, and it is willing to play. The role for Japan money should be to swap loans for low-interest bonds - 4 percent bonds - take a loss and then guarantee the new bonds. Bill Bradley Chairman, Senate Subcommittee on International Debt. It is not yet a detailed plan, and it doesn’t have a clearly identifiable individual who is responsible and who will do the 20 hour-a-day work that is needed to avert a crisis. It would help if you had one person in the Administration who could be identified to make the plan happen. I have had conversations with bankers - they want leadership and someone who is in charge. |