Debtor nations get on the financial track. Reforms and belt-tightening make them look better to lenders
New York — American bankers are beginning to tango with loans to Latin American countries again. Because of reforms and belt tightening, Ecuador, Colombia, and Uruguay are looking like good partners to the bankers. In addition, some bankers predict lenders will start to lend money voluntarily to Brazil in the second half of 1987.
These voluntary loans are an important part of United States Treasury Secretary James Baker's plan to ease the banking community and lender nations out of the debt crisis.
Private bankers have been reluctant partners since 1982, when the major debtor nations had difficulty making interest payments on their debt, which as of 1985 was $443 billion.
Now officials are pleased to see improvement taking place. Beside Ecuador, Colombia, and Uruguay, a senior US Treasury official says Mexico and Argentina are breaking ground in their debt repayment battles. William Cline, a senior fellow at the Institute for International Economics, concludes, ``The major debtor nations are on track.''
In spite of this optimism, bankers last week failed to meet an International Monetary Fund-imposed deadline to raise $6 billion for Mexico. This was to be part of an IMF-World Bank-US Treasury plan to help get Mexico through 1987.
However, one US banker involved with the negotiations predicts ``the critical mass,'' or about 90 percent of the banks, will be on board within a week. By December, he expects the entire $6 billion loan to be in place.
Mexico should be in a better economic position next year. Bankers point to a tighter monetary policy in Mexico City and more realistic exchange rates. Flight capital is beginning to return, and some inefficient government enterprises, including airlines and hotels, are being sold to the private sector. Some $600 million in debt is being converted into equity, which is also part of the Baker plan.
In spite of these improvements, some bankers remain doubtful. Says one banker, ``Mexico ... has said it's going to do these things. The problem is implementation.''
Mexico's future is also tied to the price of oil, a critical export and growth factor in the world economy. Charles Schultze, an economist with the Brookings Institution, and former head of President Carter's Council of Economic Advisers, estimates the world economy must grow by 3 percent annually to keep the debtor nations above water.
Brazil, the largest debtor, should do better than most debtor countries. Cline expects Brazil to grow at a 7 to 8 percent real growth rate. It has a $13 billion trade surplus in large part because of a surge in exports.
The biggest worry is inflation. William Rhodes, chairman of the restructuring committee at Citibank, expects bankers to lend money to the country in the second half of 1987 without having to twist arms.
Another major debtor, Argentina, has stuck to its anti-inflation plan and no longer has hyperinflation. Real growth is expected to be 4 percent this year. However, one New York banker who visits the country monthly has doubts. Shaking his head, he says, ``I just don't think they are getting their act together.'' The country is expected to ask for debt restructuring.
Bankers point to progress in Quito, Ecuador's capital. After the price of oil fell from $25 per barrel to $12 per barrel, Ecuador saw its balance-of-payments deficit swell to $350 million. At the same time, the country had a debt of $8 billion. The IMF, the World Bank, and the US Treasury came to Quito's aid with loans. But they insisted Ecuador make changes.
Ecuador allowed its currency to float without government interference and adopted policies geared toward exports and restricted imports. At the same time, notes Carlos Julio Emanuel, director general of the Central Bank, ``We've tried to build a more market-oriented economy.''
This shift in Quito's policies, however, has not come without a cost: The finance minister was impeached as a political sacrifice to those who felt the country had given up too much autonomy to comply with IMF loan agreements.
Because of Ecuador's progress, 52 banks last week voluntarily lent the country about $220 million in a unique financing plan involving the country's next six months of oil exports.
The Ecuadorian loan shows bankers are willing to lend money when they feel comfortable with the arrangements. Ecuador produces 223,000 barrels of oil per day. Under the terms of the loan, the bankers will advance funds against the 180,000 barrels of oil per day Ecuador will export.
If the price of oil rises, the amount of the loan will fall and if the price of oil drops, the amount of the loan will rise. Mark Lvoff, a vice-president at Banque Paribas, who put together the package, says other Latin American and African countries are talking about similar deals.
With Chile, bankers have concerns because human rights problems are more pressing than economic ones. It is expected that the US will abstain from voting on a $250 million World Bank loan to Chile to express US displeasure with human rights violations.
The process with the Chile loan underscores one of the touchy problems: finding politically acceptable ways to finance the needs of the debtor countries. ``Fundamentally, it is a world political process,'' Mr. Schultze says. ``Can you afford to squeeze these countries too hard?''