Latin America : Venezuela Strikes Deal With Creditors

Venezuela and its foreign creditor banks announced agreement Tuesday on a plan for trimming about one-fourth of the $20.5 billion that the country owes the 450 banks.

The complex proposal, which is the result of months of negotiations, is in line with the debt-reduction strategy outlined by Treasury Secretary Nicholas F. Brady. Under the proposal, each creditor bank would choose among four options that would enable Venezuela to cut its overall debt burden, slash its interest temporarily, buy back outstanding loans or secure up to $1 billion in new loans.

Individual banks will have about six weeks to decide which options they will accept. U.S. officials said the deal is likely to be completed formally sometime this summer but cautioned that it is still too early to tell which options the majority of banks would choose.

The Treasury hailed Tuesday’s announcement as evidence that the Brady Plan is working. David C. Mulford, undersecretary for international economic affairs, said he thought the Venezuelans “got a very good deal.”

The Brady proposal was designed to encourage creditor banks to take steps to reduce the debt burdens of Third World countries rather than provide them with new cash, as had been the strategy previously.

In effect, the plan offers banks the chance to discount a portion of the loan portfolios and exchange them for bonds or other financial instruments whose interest is backed by the International Monetary Fund, the World Bank or, in some cases, the U.S. Treasury.

However, the Brady plan has had its critics, including some who have contended that it has discouraged the kind of new lending that countries need in order to help finance their economic reform programs.

Under the deal worked out with Venezuela, the banks would be able to swap their debt for a variety of bonds, including one designed to reduce the interest rate that Venezuela would have to pay to 5% in 1991 and 1992, 6% in 1993 and 1994 and 7% in 1995.

The Venezuelan deal marks the fourth to be worked out since the Brady Plan was proposed just over a year ago. Mexico reached agreement on a debt-reduction plan last fall, followed by the Philippines and Costa Rica. But the specifics of the individual deals varied widely.

Unlike the case in the Mexican arrangement, the United States did not exert strong pressure on the banks to complete the negotiations with Venezuela. Mulford said he thought the banks were more satisfied with the Venezuelan package because it offered them more options.

Venezuela owes foreign creditors about $28 billion overall, about 71% of it to U.S., European and Japanese banks. The country enjoyed hefty earnings from oil exports in previous years but has seen them fall as petroleum prices have fallen.

The banks have also held preliminary talks with three other countries--Morocco, Uruguay and Ecuador--and are expected to start negotiations soon with Brazil, whose new government took office this month.