U.S. Believes Debt Crisis Has Turned Corner : New Brazil Negotiations Are Cited as Example

The Reagan Administration believes that the debtor countries’ strongest economic weapon, the debt moratorium, has been tried and discredited, U.S. government officials said on Sunday.

The officials, attending the annual meeting of the Inter-American Development Bank, said they believed that the debt crisis had turned a critical corner and that the strategy unveiled by Treasury Secretary James Baker 2 1/2 years ago and refined since had been more successful than was generally recognized.

The officials said Brazil had tried the payment cutoff approach and in the end concluded that in the long term the moratorium carried too high a cost by shutting off new assistance.

“That is an enormously positive development for the debt strategy,” one source said.

In the past, there had been deep fear that the debtor countries of Latin America, overwhelmed by nearly $400 billion in foreign debt, much of it to commercial banks, would form a cartel and renounce their obligations.

But the sources said that the decision by Brazil to renew payments on its debt to commercial banks and to seek a new economic program with the International Monetary Fund suggested this weapon had been tried and found wanting.

Coming to Grips

The sources said Brazil is seeking a three-year program with the IMF rather than a much shorter agreement that has been used extensively since the debt crisis began in 1982.

They suggested this indicated that Brazil was making a long-term commitment to coming to grips with its problems. Brazil Finance Minister Mailson Ferreira da Nobrega and his financial aides met with Brazil’s 13-bank advisory committee, chaired by Citibank, to discuss the final details of an agreement, which also involves restructuring most of its $67 billion commercial bank debt.

Sources at the conference said that Argentina, despite major problems, had been demonstrating economic discipline and that Mexico had been doing well.

They said the lack of success of Mexico’s so-called bonds for debt deal was another positive indication that the banks preferred to continue holding on to the Mexican debt in part because they planned to continue a long-term relationship with the country.

In other news from the conference, the IADB reported that production faltered in Latin America last year after three years of growth.

8% Growth

In the years 1984 to 1986, the official value of all production in Latin America grew by an average of 3.8% a year, the bank said in its annual report. In 1987, the growth was only 2%. Since population also grew at about that rate, the average income remained stagnant for the area as a whole.

There was a wide range within the average.

Brazil is the biggest and most populous country and accounts for about a third of the area’s total production. In 1986, its growth was more than 8%, and so was Peru’s. Brazil’s neighbors--Guyana, and Trinidad and Tobago--saw declines in their production of more than 6% that year.

The report does not furnish figures for individual countries in 1987, but says that none of the big four--Argentina, Brazil, Mexico and Venezuela--had a growth rate of more than 4%.