Banks Urged to Again Lend to Debtor Nations

Top U.S. and international officials urged a group of reluctant bankers here Friday to resume lending to troubled debtor nations.

David C. Mulford, assistant U.S. Treasury secretary for international affairs, and Jacques de Larosiere, managing director of the International Monetary Fund, told the bankers that lower oil prices and falling interest rates had made most indebted Third World nations better risks for new loans.

De Larosiere said banks today are in a favorable position to provide new lending--which essentially stopped in 1983 after a decade of explosive growth--because two years of strong profits have bolstered their capital and bad-loan provisions.

“The upshot is that banks are now on a firmer base with which to renew moderate bank lending to debtor countries, just as debtors--with a stronger buffer against external shocks--should be better placed to keep current in their payments obligations,” De Larosiere said.

Mexico is an exception, Mulford and De Larosiere noted, because its earnings from oil sales have plummeted, exacerbating an already serious budget deficit problem and making repayment of its $99-billion foreign debt more difficult.

The officials’ comments came at the annual meeting of the Bankers’ Assn. for Foreign Trade, a group of 240 banks worldwide involved in international lending.

Mulford chided the bankers for their lack of cooperation with one another and their apparent hardline stance toward repayment problems of debtor countries, particularly Mexico.

He said the bankers are waiting until Mexico and other major debtors resolve differences with the IMF and other international agencies before considering new loans.

He particularly noted that smaller U.S. banks, with relatively minor exposures in the Third World, are expressing a desire to “cut and run” from the debt problem.

In his remarks to the bankers and in a later press conference, Mulford elaborated on a plan to convert some bank debt into equity in foreign enterprises.

Under such a plan, a bank would sell part of the loans it has made on, say, a Mexican steel mill, to Mexican investors, who would then have an ownership share in the plant. The bank would reduce its overall exposure while the new equity holders presumably would repatriate some of their flight capital held abroad.

About $300 million in such conversions already have been completed in Chile.