Empty Hands Across the Waters

By Barbara Rudolph

Third World debtors and Western lenders share a precarious and often stormy coexistence. The main subject of their discontent is the $360 billion that Latin Americans owe moneymen. Since the debt crisis struck three years ago, tensions between lenders and borrowers have periodically flared and subsided. Now they are flaring again.

In his annual state of the nation speech, Mexico's President Miguel de la Madrid Hurtado last week called for a new round of negotiations to ease repayment conditions. Talks between Brazil and the International Monetary Fund for a new loan agreement were suspended last month because the country refused to implement a strict austerity program. Declared Brazil's President Jose Sarney: "We cannot allow the dogmatic intransigence of international financial organizations to impose recessive policy." Meanwhile, Argentina's President Raul Alfonsin has warned that debt repayment would not come "at the cost of our people's hunger."

Mexico's De la Madrid wants new terms for the repayment of his country's $96 billion in loans. Mexico currently pays $9 billion a year in interest charges. While De la Madrid clearly challenged Western bankers, he did not threaten any specific action. In fact, last month Mexican Finance Minister Jesus Silva Herzog signed the final part of an agreement with his country's bankers, extending payments on $48.7 billion in loans until the end of the century.

That debt rescheduling gives Mexico a respite but no permanent relief from its fundamental economic problems. As the price of petroleum has fallen, Mexico's income from oil exports has declined $2.5 billion. In recent years, oil has provided around 75% of the country's export earnings.

Despite the heated rhetoric of the debt talks, Western creditors are consoled that no Latin nation has yet followed the example set in July by Peru's new President, Alan Garcia Perez. He vowed to limit the country's interest payments to just 10% of export earnings. If other debtors were to adopt such a policy, the fragile structure of Latin debt could collapse.

Creditors are also cheered that no Latin nation has heeded Cuban Leader Fidel Castro's call to repudiate the region's foreign debt. During a five-day conference in Havana last month, Castro railed that the debt was "mathematically, economically, politically and morally unpayable." Missing from Castro's cant was an admission that Cuba itself faithfully pays interest on $3.4 billion in foreign debt to countries such as Japan and France. Cuba wants to keep a good credit rating.

Perhaps the biggest trouble facing the Latin debtors is that Western banks are unlikely to extend them any new credits. In fact, during the first three months of this year, loans to developing countries actually declined by $2.4 billion. The Federal Reserve Board or the IMF could pressure the moneylenders to write new Latin loans, but without that push a resumption of voluntary lending is improbable. Says Terence Canavan, executive vice president of Chemical Bank: "There are serious doubts that Mexico or any other Latin American debtor country will be in better shape five years from now. Therefore, no bank wants to be caught as a lone voluntary lender. New formulas will have to be found for capital flows to resume."

With reporting by Frederick Ungeheuer/New York, with other bureaus