Bush Backs Latin Debt Plan but U.S. May Go Slowly Putting It Into Effect

Treasury Secretary Nicholas F. Brady’s controversial new plan for reducing the Third World’s debt burden won formal presidential backing Tuesday but officials said it is likely to require more “development” and will be put into effect only slowly.

At a 90-minute meeting, a Cabinet-level review group headed by President Bush technically endorsed the Brady proposals. White House spokesman Marlin Fitzwater said after the meeting that the President “fully supports the concepts and processes for debt reduction and economic growth outlined by Secretary Brady” last Friday.

Nevertheless, U.S. officials confirmed that the decision means that many of the features of the current debt strategy will be kept intact and that the new ideas will be pursued cautiously as a supplement to current policy, not as a replacement. And for the time being, they said, the United States will apply the new policy to only a handful of debtor countries.

Brady’s proposals, unveiled Friday without a full go-ahead from the White House, seek to aid Latin American debtor countries by coaxing commercial banks to negotiate reductions in the principal and interest paid by these countries, using guarantees from the World Bank.

The proposals have been portrayed as a major shift in the Administration’s thinking on the debt issue. The previous debt strategy, in effect since late 1985, called for increased lending by commercial banks in return for new steps by debtors to reform their economies.

The new plan had drawn vigorous opposition from the State Department and the National Security Council, which contended that reducing the nations’ debts alone would not enable them to resolve their financial problems--let alone spur increased growth. They said the debtor nations also must receive new loans from banks.

U.S. officials said the Treasury will continue to refine the Brady ideas over the next few months, discussing them with finance ministries of other major industrial countries, debtor countries, the IMF and World Bank and members of Congress, but at a deliberate pace.

“We will discuss these ideas in more detail, but we will not develop a comprehensive blueprint that cannot be changed,” one senior Administration official said. “Many judgments will go into the thinking on this issue.”

May Move Quicker

The opposition by some agencies to the new plan has proven embarrassing to Brady, who already has run into criticism for an earlier proposal to fund a bailout of the savings and loan industry with a new fee on depositors.

Partly to help soften the blow, the Administration is expected to move more quickly than it had planned to offer to make the new debt-reduction efforts available to Mexico and Venezuela, which are in the middle of negotiating new bank-lending packages.

Venezuela has just suffered a series of riots, ostensibly linked to its economic austerity efforts, that left 300 persons dead. The United States announced last Friday that it is providing Caracas with a $450-million temporary bridging loan to tide the country over.

President Bush has promised new Mexican President Carlos Salinas de Gortari that the United States would back his government’s efforts to undertake major reforms in the Mexican economy. U.S. officials regard Mexico as a model debtor.

Among the proposals that Mexico and Venezuela may be offered under the Brady proposals might be World Bank collateral to help swap long-term Mexican government bonds for some of the country’s current outstanding debt. Mexico has tried similar moves on a smaller scale before.

But the United States still would help both countries arrange for new loans from the IMF, the World Bank and commercial banks to help them pay for imports, debt-service and other international obligations. And bank lending would continue to play a major role in helping other debtors.