Hard line at Citibank irks third-world debtors and other US banks
New York — Citicorp, which has the biggest exposure to troubled third-world borrowers, has been causing some turbulence in the negotiating process, other bankers and borrower-country officials say. The bank's vetoes of modest interest-rate reductions and other concessions to the Philippines and Chile, coupled with delays in presenting any counterproposal, infuriated borrower countries and widened divisions in what the Latin American press calls ``the lenders' club.''
``Citicorp is just being obstructionist and obstinate,'' says an official of one money-center bank. The bankers and officials who are critical say Citicorp's main preoccupation is the coming negotiation with Brazil, scheduled to begin next month. They say Citicorp has been vetoing any concessions to other countries, so as to strengthen its position in the talks with Brazil, whose loan payments account for a much of Citi's earnings.
The first of the Citicorp vetoes came last November, when all the other members of the negotiating committee for the Philippines were prepared to offer that country an interest rate of 1 percent over the London interbank rate on a substantial amount of its bank debt. That would have represented a modest reduction in the rate.
The second veto came just before Christmas, when the Chilean negotiating team proposed a package of measures that would have avoided the necessity for the country to add to its foreign debt over 1987-88. The package involved not only interest-rate reduction, but also a ``retiming'' of interest payments, which would have resulted in a one-time saving of some $400 million, participants in the talks say. Once again, Citicorp was the only committee member to reject the package, and since the committee system works by consensus, this proposal, too, was rejected.
Financial officials close to the talks say Citicorp viewed the Philippine proposal as a dangerous first step toward global interest-rate reductions and saw the Chilean proposal as an even more dangerous first step toward interest-capitalization, something to which Citicorp is firmly opposed.
Bankers say there are now counterproposals to offer the two governments.
They are keeping quiet about what they will be offering the Filipinos when talks resume next month. But the Citicorp-sponsored proposal for Chile, as presented in the newspaper El Mercurio of Santiago, involved a new twist. To raise money to pay the otherwise-unpayable interest, Chile would issue bonds in the Euromarket, which would carry the guarantee of the banks that are already its creditors. It is a concept that was rejected by Mexican negotiators in their talks last year.
Chilean officials don't like the idea, because it would result in increasing the total amount of their foreign debt, something they wish to avoid.
Citicorp, according to the Chilean newspaper, is presenting this proposal as a ``more free-market'' solution than the Chilean proposal, despite the artificiality of the banks' guaranteeing their own income.
``The market,'' says one observer of the negotiating process, ``is not going to be that easily fooled.''