In Debt? Ring Up the Louvre

By FREDERICK UNGEHEUER/PARIS

Jean-Pierre Marlet, owner of the tony Club de Paris bar just off the Champs Elysees, has a problem. Officials with strange-sounding names and bizarre accents often telephone his establishment, asking to discuss their governments' foreign debts. Says Marlet: "No one ever gets credit here, and I have enough debts of my own to worry about." The experienced manager instead refers his callers to a telephone number at the French Finance Ministry on the Rue de Rivoli.

There importunate foreign callers discover a much weightier Paris Club: a discreet group of officials from 16 industrialized countries who meet regularly to ponder overdue Third World loans owed to their respective governments. The club was started in 1954, when Argentina, faced with a liquidity squeeze, called for an ad hoc meeting in Paris with all of its creditor governments. Since then, the group has evolved into one of the financial world's most important "non-institutions," as one representative called it. The club has no official charter, no staff of its own or even a permanent headquarters. It works by a set of unwritten rules and owes much of its significance to the refined negotiating skills and political savoir faire of a succession of French Finance Ministry officials who, in the words of former U.S. Comptroller of the Currency John Heimann, "have rolled over a vast amount of Third World debt with a minimum of fuss."

The focus of the club's concern is money lent to Third World countries not by private banks but by governments themselves. The main work of the club is "rescheduling," a euphemism for delaying portions of government-to- government debt that is one or two years in arrears, usually with the proviso that current obligations be met. The club's membership list includes such predictable names as the U.S., Britain, France and Japan, all well-known international lenders. But the club also includes some Third World debtors, like Brazil (foreign debt: $110 billion), that have nonetheless managed to lend money to other developing nations. In the past four years alone, the Paris Club has been able to reschedule more than $63 billion worth of uncollectible obligations. The volume of rescheduled debt, says Jean-Claude Trichet, the sharp-eyed Cabinet director of France's Finance Ministry, "shows that we are living in dangerous times."

Trichet, 44, should know. His official job is chief domestic policy aide to French Finance Minister Edouard Balladur. But Trichet also presides over Paris Club affairs from behind his Louis XV desk in a spacious office overlooking the Louvre gardens. So far this year, representatives of 13 countries have come to Trichet to request rescheduling discussions. Among the visitors: Brazil, Argentina and Egypt. The previous record for the club was in 1985, when 17 countries renegotiated their debts, five of them twice.

Compared with the entire mountain of debt owed by the 15 most heavily indebted Third World nations -- about $463 billion, of which $286 billion is owed to private banks -- the unpaid IOUs piled up before the Paris Club, while substantial, seem of only secondary importance. But before they begin their own painstaking sessions with debtors, the world's major banks often wait to see how club governments will react to requests for postponed loan repayment. The club also has an important effect on the cash flow of needy governments. Unlike banks, which postpone only the repayment of principal on loans, the Paris Club will postpone the payback of both principal and interest, thus freeing up additional credit for use by the debtor. In the past two years, club governments have used this method to add $15 billion to the coffers of petitioning debtors.

Like commercial creditors, the Paris Club governments insist that creditors who plead for rescheduling should receive at least a word of approval and an interim loan from the International Monetary Fund in Washington, an organization to which club members also belong. Then, to convince the club that they are truly unable to pay back outstanding loans, petitioners must do a virtual striptease, disclosing their most sensitive financial data. "One of the unwritten rules is that the confidentiality of a debtor country's economic and financial statistics is sacrosanct," Trichet explains.

Rescheduling meetings are held as often as once a month in the old Hotel Majestic, now an international conference center, on Paris' fashionable Avenue Kleber. Sessions deal with two or three countries at a time. The U.S. position on issues is prepared by the Treasury Department, although Washington's chief delegate is William Milam, 50, an easygoing Deputy Assistant Secretary of , State for International and Finance Development. Discussions often run from 9 a.m. to well past midnight, with only half-hour breaks for lunch and dinner in the building's downstairs cafeteria.

Not all meetings have happy outcomes. Last week, for example, Brazil discomfited fellow club members by suspending payment on more than $1 billion of debt principal owed to governments. But the moratorium, which had been widely expected, will not affect this year's interest payments to the club of about $242 million.

The Paris Club's schedule is likely to grow more hectic, if only because the Third World debt crisis, particularly in Latin America, is again worsening. Warns Pedro-Pablo Kuczynski, co-chairman of First Boston International in New York City: "Only if commodity prices rise faster than interest rates can Latin America make it." In other words, Jean-Pierre Marlet at the Club de Paris may be getting more misdialed calls than usual this year, and over at the Louvre, Jean-Claude Trichet may be working harder than ever.