Thursday marked six months since Brazil suspended payments on $68 billion worth of debts and could open a new phase in the crisis over the trillion
dollars owed by Third World countries.
When a country fails to pay interest on a loan for more than six months, U.S. bank supervisors may classify the loans as "value impaired."The designation requires U.S. banks to set up additional reserves to cover expected losses, a move that likely will discourage bankers from making new loans.
The debt crisis began on Aug. 20, 1982, just five years ago Thursday, when Mexico announced it could make no more payments on its loans. Brazil is the Third World's biggest debtor - over $110 billion. Mexico is second with $101 billion.
Poor countries say they need money from rich ones for investments to produce more goods, create new jobs and pull themselves out of poverty. On a net basis they have not been getting it - money now flows in the opposite direction.
About $30 billion a year goes from Third World countries to richer ones, according to Richard Feinberg, vice president of the Overseas Development Council, a private study group.
This outflow is due mainly to interest poor countries pay on debt, to low prices they get for raw materials they produce, and to protection set up in wealthier countries against goods the poor countries have to sell.
It totals more than the money that reaches them in the form of aid, loans, investment and receipts from sales.
The "value impaired" designation has been applied to loans for some countries including Poland, Zaire, Bolivia, Peru, Liberia, Nicaragua and Sudan. The action is taken by the U.S. government's Interagency Country Evaluation Review Committee to protect the banks' depositors.
If the committee makes such a ruling on Brazil it would order U.S. banks, which hold about $23 billion in Brazilian debt, to set up additional reserves above those the major banks recently set up on their own initiative.
"That wouldn't encourage them to lend the $7.2 billion that Brazil is asking in new loans for this year and next," said one banker, who spoke on condition that his name not be used.
The committee is due to meet in October, as usual behind closed doors. Its decisions are not announced but communicated quietly to banks, so as not to embarrass the governments affected.
The committee could decide not to downgrade the Brazilian loans if it finds that president Jose Sarney's government does have some prospect of resuming interest payments.
Commercial banks and governments disagree over which should furnish the
bulk of the new money for the Third World. Treasury Secretary James A. Baker III and other government leaders have criticized banks for slowing down their lending.
Banks want government to take more of the burden, though after much official arm-twisting they will be lending more in the next couple of years.
The U.S. Congress, faced with huge budget and trade deficits, would probably refuse to provide more money, but in May Japan announced a special $20 billion dollar aid program.