U.S., Venezuela OK Stepped-Up Effort on Debt

President Bush and Venezuelan President Carlos Andres Perez agreed Saturday to begin intensive work on a plan to reduce Venezuela’s $33-billion foreign debt, making the country one of the first “test cases” of America’s new Third World debt strategy.

U.S. officials said the meeting between the two leaders, which lasted for almost two hours, was designed both to provide new political impetus to the effort to help Venezuela with its debt problems and to coordinate the two leaders’ policies on Central America.

Administration officials said top economic policy-makers from the two countries would begin intensive sessions this week to work out a concrete debt-reduction plan. The Venezuelans are here for a meeting of the 151-nation International Monetary Fund.

It was not immediately clear how much in actual debt relief Venezuela would be able to obtain. Secretary of the Treasury Nicholas F. Brady is to unveil the broader U.S. debt strategy at a special meeting today of finance ministers from seven major industrial nations.

Mixed Reaction to U.S. Plan

Initial reaction to the U.S. proposal, which Brady outlined broadly on March 10, has been mixed. U.S. officials say support from Perez, who is one of South America’s elder statesmen, could have a major impact on how other Third World countries react to the plan.

“The focus (at the White House meeting) was on implementation (of the new debt relief ideas)--let’s get on with it,” a U.S. official said. “Nobody has any question about the urgency of the economic situation in Venezuela.”

Besides Bush and Brady, Secretary of State James A. Baker III also attended the White House meeting.

The new Brady debt plan essentially would offer to help debtor countries reduce the cost and size of their huge foreign debt by asking the IMF and the World Bank to serve as catalysts for schemes under which banks could write down their loans and swap them for guaranteed bonds.

The proposal is designed to replace the previous debt strategy, outlined by Baker when he was Treasury secretary in 1985, which called on banks to provide new loans to help debtor countries finance economic reforms. (See related story in Business, Page 1.)

Venezuela, the oldest democracy in Latin America and a major oil producer, has been in a crunch since oil prices collapsed in the early 1980s. Perez, a moderate socialist, imposed economic reforms after his inauguration in January, touching off riots that claimed 300 lives.

Although Perez publicly has blamed the riots on the “intolerable and obscene” burden of repaying his country’s foreign debt, U.S. officials said he struck a more conciliatory and pragmatic tone in his talks with Bush, promising to continue overhauling his economy.

“He made it clear that he understands that countries that don’t reform and restructure their economies can’t escape blame for their own problems,” the official said.

U.S. and Venezuelan officials have already held preliminary talks to discuss a debt reduction strategy, but Bush and Perez directed their aides to accelerate the negotiations this week, several officials said.

Treasury officials have been hoping to move quickly to apply the new plan to two or three countries in hopes of blunting criticism that the proposal is ineffective and making it more credible to debtor countries, many of which are embroiled in political unrest and are facing leftist challenges.

Besides Venezuela, U.S. officials also have been considering Mexico as a candidate for quick action under the new proposal.

Investment Potential

“We discussed the potential for Venezuela as one of the first test cases (of the Brady plan),” the official said. “As an oil exporter, Venezuela can attract new capital flows better than some other countries.”

Officials said it was too early to predict how soon a concrete plan for reducing Venezuela’s debt might be ready, however.

The United States wants finance ministers of the seven largest non-Communist industrial nations to endorse the plan today and agree to refine it further between now and the seven-nation economic summit in Paris in July. Besides the United States, the group includes Japan, West Germany, Britain, France, Italy and Canada.

In their meeting Saturday, Bush and Perez also discussed the situation in Nicaragua, where the Administration has launched a new strategy to put diplomatic pressure on the ruling Sandinista regime for democratic reforms.

As part of its pressure, the Administration has won approval from congressional leaders for continued non-military aid to the Contras.

Perez, who has played a key role as a mediator between the Sandinistas and Nicaraguan opposition groups, assured Bush of his general support for the new U.S. approach and said he understood the rationale for the continued Contra aid, one official said.

But the Venezuelan disappointed some U.S. officials by ducking an opportunity to make his support public when he left the White House without pausing to talk with reporters.

Bush and Perez also discussed the situation in Panama, where the United States has mounted an abortive campaign to oust the military strongman, Gen. Manuel A. Noriega.

Along with Bush, Perez has been pressing Noriega to allow free elections in Panama next month, although U.S. and Venezuelan officials are privately pessimistic about the chances for an untainted vote.