Venezuela and Banks Near Agreement on Debt Relief
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LEAD: Venezuela and its commercial bankers are moving toward a debt agreement that is expected to include a provision for substantial, but temporary, debt relief. Venezuela and its commercial bankers are moving toward a debt agreement that is expected to include a provision for substantial, but temporary, debt relief. The relief would come in the form of a large reduction in the interest rates that Venezuela pays on its $21 billion of loans from commercial banks. These rates, now around 10 percent, could be reduced by several percentage points. If economic conditions improve over the next several years, the interest rates would return toward their present level. Commercial bankers and officials in the negotiations, which have been going on and off for more than a year, said the proposal was necessary because the bankers believe that Venezuela, unlike Mexico and Brazil, does not need debt reduction. Political Motives Cited The country’s push for it, they argue, is politically motivated to help the Government win support for the difficult economic changes it put through to fight inflation. Those changes include the privatizing of state-owned industries and opening the economy to foreign investment. The restructuring has pushed the country into a deep recession, with the economy declining by at least 8 percent over the last year. If an agreement is reached that contains the temporary reduction, it would be the latest under the Brady Plan, the Bush Administration’s strategy to ease third world debt, named for Treasury Secretary Nicholas F. Brady. Mexico was the first to reach an agreement under the Brady plan, which was announced a year ago. The Philippines and Costa Rica have also reached agreements. ”We are certainly moving very nicely in a very good atmosphere toward an agreement,” said one banker about the Venezuela negotiations. ”In the next couple of weeks we could be there.” Like others commenting on the negotiations, he asked not to be identified. Miguel Rodriguez, the Minister of Economic Development and head of the Venezuelan negotiating team, was in New York last week to meet with the banks’ advisory committee, led by the Chase Manhattan Bank. Several Options In a final plan, a temporary debt-reduction provision would be one of several options. Bankers and officials said the plan also contains an option to buy back debt, with Venezuela purchasing some existing debt at a discount below the face value that would be based on bids from banks. It also contains an option, comparable to one in the Mexican agreement, that would set a specific level of debt reduction. It was 35 percent in the Mexican plan. In Venezuela’s case, the banks would exchange existing debt for securities with a lower face value or a lower interest rate. These securities would come with guarantees that would cover the principal and interest payments. The money for these so-called enhancements would be provided by the International Monetary Fund, the World Bank and other countries, probably including Japan. |