Rising interest rates andprotectionist trade policies had prompted a new push by Latin
American nations to win debt relief, regional foreign and
finance ministry officials said here.
    Officials of the Cartagena group of 11 debtor nations met
here this week to draw up new proposals in reaction to what
they called a deteriorating world panorama, and Citicorp's
decision to create reserves against third world loans.
    (SEE ECRA FOR SPOTLIGHT HEADLINES)
    "We are looking at trade, interest rates and financial
flows.....In order to put forward a basis for some permanent
solutions," Mexico's public credit director Angel Gurria said.
    Recent developments have led to moves for a summit of Latin
American presidents and debate on new solutions.
    Ideas include schemes to link debt payments to trade, and
proposals for stable interest rates. The latter was proposed in
a letter this week from Cartagena to G-7 leaders who are due to
attend a summit in Venice this month.
    Another idea is to include debt under Gatt negotiations,
but Cartegena ministers have yet to endorse any proposals.
    Speaking earlier in New York, Uruguay's Foreign Minister
and Cartagena group chairman Enrique Iglesias said Citicorp's
decision could discourage new lending. But it might help
Cartagena's bid to have old and new debt treated separately.
    The Cartagena group, which has not met at ministerial level
for over a year, wants to repay debt contracted before the debt
crisis at the low interest rates prevailing in the 1970s. It
would pay new loans at current market rates.
    "Many countries fear that what they have gained in months of
arduous debt negotiations they can lose at a stroke with a one
point rise in interest rates," one official here said.
    "The new increase in interest rates has come precisely when
we thought they had still not come down enough," Iglesias said.
    Latin American officials are also concerned that varying
interest spreads granted to different debtor nations could
generate discord, as with the Philippines' recent protest at
being given less favourable terms than Argentina.
    There has been speculation Venezuela would demand a cut in
its 7/8 pct spread, but public finances director Jorge Marcano
said here there were no plans to renegotiate terms.
    This week's meeting came after three Latin American
presidents meeting in Montevideo called for stable interest
rates on the region's 380 billion dlr foreign debt. It was
called to review developments since the last ministerial
meeting in February 1986 and to think up new ideas.
    Since the last ministerial meeting there have been some
advances, such as Mexico's growth-oriented 77 billion dlr loan
and refinancing package agreed last September. But there have
also been setbacks, like Brazil's payments moratorium.
    The loans expected in the Baker plan have not materialized
and debtors have been forced to browbeat reluctant banks.
    "We have clearly stretched the restructuring process to its
limits and and the question is now where do we go from here?" a
senior Mexican foreign ministry official said.
    Existing debt strategy has been based on nursing debtor
economies back to a position where they can again service their
debts and qualify for new loans.
    But after five years of economic adjustment, Latin American
debtors are currently unable to raise voluntary credits, with
the exception of Colombia. Only Venezuela is paying back
principal. Most countries have no prospect of paying their
debts in the foreseeable future.
    Citicorp has made clear its decision to move three billion
dlrs to reserves does not mean it is writing-off the loans.
    Latin American officials here said Citicorp's move would
probably boost trading of discounted third world debt in the
secondary market, implicitly downvaluing the amount owed. But
they said it might make new lending even more remote.
    Discounted debt can be bought by foreign investors through
debt-equity schemes that generate new resources for debtor
economies. Chile and Mexico are currently front-runners in this
field, but most Latin American officials see these schemes as
limited and no panacea for the overall problem.
    Most Latin officials set greater store on building up
export income than on debt-equity schemes.
    Exports hit 97.7 billion dlrs in 1984, cutting the region's
debt service ratio to 36 pct, but they fell to 78.3 billion
last year. So, even though interest rates had dropped the ratio
hardly changed.
    The Cartagena group has called for the debt-trade link to
be recognized before, but has not made detailed proposals.
    Officials said initiatives discussed here would be
submitted to foreign and finance ministers of the 11 nations,
before IMF and World Bank annual meetings later this year.
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