IMF Issues First Loans Under Brady Plan : Controversial U.S. Initiative Intended to Cut Third World Debt

The International Monetary Fund announced Wednesday its first two loans based on Treasury Secretary Nicholas F. Brady’s plan to slash Third World debt.

The loans, $1.17 billion to the Philippines and $52 million to Costa Rica, were approved after IMF directors endorsed the Brady plan at a lengthy, contentious board meeting that ended late Tuesday.

The fund’s approval is a big step forward for the debt initiative, which has been criticized as inadequate and ill defined since Brady unveiled it March 10.

“We have the first concrete outcome in terms of the resources that will be put into place at the IMF and the terms on which those will be made available,” Treasury Undersecretary David Mulford told a House Banking subcommittee.

The IMF board agreed that 25% to 30% of its loans could be set aside to finance debt reduction. Debtor nations will also be allowed to borrow an additional 40% of their IMF quota to support interest payments.

Both ideas were pushed strongly by the United States, which wants to cut debt to ease financial tensions in strategic countries such as Mexico and the Philippines.

Washington’s allies supported its goals, but Britain, fearing a taxpayer bailout of commercial banks, approved a big role for the IMF only after a fierce struggle, officials said.

“We came very close to not accomplishing those (resource) levels” for the IMF, Mulford said.

The directors of the World Bank, which is expected to put up a similar amount of money, are likely to give their formal blessing to the Brady plan on Tuesday.

In the case of Mexico, the IMF plan means that some $1.2 billion could be available over three years to pay for direct cash buybacks or to support bonds that Mexico would issue in exchange for existing, more expensive bank loans.