Bankers discuss debt crisis

Press, 7 May 1984, Page 6

Bankers discuss debt crisis

NZPA-Reuter New York Central bankers from around the world are meeting in New York today to explore possible long-term solutions to the international debt crisis.

The four-day meeting comes amid concern that the high level of United States interest rates could eventually force some developing countries to default on their massive foreign debts.

The president of the Federal Reserve Bank of New York, Mr Anthony Solomon, who is one of the chief organisers of the meeting, told the Senate Banking Committee recently that a small rise in interest rates in the United States adds billions of dollars tp v the

Third World’s debt servicing costs.

To ease this burden, Mr Solomon proposed setting a limit on the interest a country is charged on its bank loans.

This is one of the ideas likely to be studied at the closed-door conference.

But a spokesman for the New York Fed. said the meeting was not aiming to come up with any instant policy cures. Rather, it will seek to put the problems into a longer-term perspective, he said. Concern over the two-year-old debt crisis mounted with the 5500 million rescue package that was stitched together for Argentina at the end of March, bankers noted.

The Fed. spokesman said today’s meeting had been planned for months and was not called in response to any fresh developments on the debt front.

But Mr Jeffrey Garten, of an investment banking company, Lehman Brothers Kuhn Loeb, said, “Clearly pressure is building to provide additional debt relief for Latin America.”

Leading officials from about 20 central banks will attend the meeting. Other participants include the managing director of the International Monetary Fund, Mr Jacques de Larosiere, and Mr William Rhodes, of Citibank, who has spearheaded a worldwide effort by banks to keep Latin America afloat.

One official from the World Bank, which will also be represented, said in Washington that the meeting would try to reach tentative conclusions for presentation later to finance ministers.

Another long-term solution that has been widely discussed is the capitalisation of interest. Instead of paying, say, 13 per cent interest, a borrowing country would pay 6 per cent and the remainder would be added to the principal of the loan.

Whereas accounting regu-, lations make capitalisation attractive to banks in many European countries, American banks would find their earnings depressed because a loan paying only partial

interest would have to be classified as a problem loan. Despite the regulatory obstacles, which will be spelled out to the central bankers by a lawyer and an accountant, a senior New York banker said he would not be surprised if the next loan package for Brazil included a capitalisation option.

But he expressed doubts about just how much the regulators could do to tackle the debt problem until the lending banks themselves agreed on the way forward.

“They can talk as much as they want, but it won’t mean a thing until the banks agree,” he said. “And at the moment there is no consensus.”