Bush’s Costa Rica Visit May Include Announcement of Major Debt-Relief Package

President Bush’s trip to Costa Rica today is expected to be buoyed by a surprise development--the announcement of a major debt-reduction package for that nation under a Third World debt-relief plan outlined by U.S. Treasury Secretary Nicholas F. Brady.

Although details were still being ironed out Thursday, negotiators for Costa Rica and about 250 commercial banks were reported to have agreed in principle on a plan that would significantly pare back the estimated $1.8 billion that Costa Rica owes the banks.

The accord was expected to be completed in time for Bush and Costa Rican President Oscar Arias to announce it today.

Completion of the negotiations is important politically, both to Costa Rica’s economy and to future management of the Third World debt problem.

The debt burden has become a major issue in Costa Rica because it is impeding the expansion of that nation’s economy.

The accord would be a personal coup for Arias, who has repeatedly expressed hope that he would be able to resolve his country’s debt problem before he leaves office next fall. Costa Ricans are to elect his successor in another month.

With Bush’s trip firmly in mind, Treasury officials have been prodding commercial banks for weeks to complete negotiations on the plan before the President left for the Latin American summit conference that was to begin today in San Jose, Costa Rica’s capital.

Washington’s help in the negotiations was critical because Costa Rica’s $1.8-billion debt is so small in comparison to that of larger debtors, such as Brazil and Argentina, that the country had virtually no leverage on its own in bargaining with commercial banks.

The negotiations between Costa Rica and its foreign creditors have been going on for about three years, but they were intensified earlier this fall after the Bush Administration stepped in and began pressuring the banks.

U.S. officials had hoped a settlement would serve as a demonstration that the debt problem is solvable through conventional means. Arias had slated the debt problem as one of the major issues to be discussed at the summit.

The arrangementcalls for far more debt reduction than most of the packages negotiated so far under the Brady plan. There is virtually no new lending by the banks.

The nub of the new arrangement calls for Costa Rica to buy back about 60% of its debt at a price equal to 20 cents on the dollar--in other words, after the debt has been discounted by about 80%.

The remaining 40% of the debt would be channeled into so-called exit bonds, in which banks would reduce portions of Costa Rica’s outstanding balances in exchange for Costa Rica’s guarantee that it would meet interest payments in full.

The $300 million in back interest payments that Costa Rica owes will be refinanced and stretched over a longer repayment period. Portions of the debt also may be exchanged for equity shares to be given to the banks in Costa Rican business enterprises.

In an unusual feature, Costa Rica will not have to agree to further belt-tightening measures in exchange for the debt relief. International officials have said the Arias government already has taken sweeping steps to put its economic house in order.