New U.S. Latin Plan May Seek Some Forgiving

The Bush Administration is growing deeply concerned about the deteriorating economic and political situation in Latin America and, just as it did 3 1/2 years ago under similar circumstances, the Treasury Department is preparing a new plan for dealing with the Third World debt problem.

But this time, the Treasury is putting a heavy emphasis on a relatively new approach--encouraging banks to voluntarily forgive part of the debt owed to them by developing nations.

The new plan, government sources said, will be both a continuation of the Baker Plan, which was launched in October, 1985, and a departure from it. Like the Baker Plan, named for then-Treasury Secretary James A. Baker III, the new plan won’t involve a sweeping solution for all debtors; instead, it will be aimed at rewarding nations that have agreed to adopt tough reforms to put their economies on sound footing.

But while the Baker Plan relied on providing fresh bank loans to countries already burdened with heavy debt loads, the new plan emphasizes reducing the amount of outstanding debt, the sources said. In a further departure from the policies of the Reagan Administration, the plan would tap the resources of the International Monetary Fund and the World Bank to make it more attractive for banks to forgive a portion of their loans.

The plan is still being crafted under the direction of Treasury Secretary Nicholas F. Brady, and Administration officials said it may be changed as it undergoes review by the White House and other agencies. But the officials said the Administration recognizes the need to unveil its proposals soon, especially in light of the recent riots in Venezuela and the fears they raised about the effects of the debt problem on Latin America’s political stability.

Even before the Venezuelan crisis erupted, there were plenty of trouble spots in Latin America to worry U.S. policy-makers. In most of the Latin countries, living standards have been steadily declining since 1982, when the debt problem exploded into a crisis. Fears are mounting that a recently democratized region will revert to dictatorships of the left or the right or both.