U.S. URGES BANKS TO WEIGH PHILIPPINE DEBT PLAN

  The U.S. is urging reluctant
  commercial banks to seriously consider accepting a novel
  Philippine proposal for paying its interest bill and believes
  the innovation is fully consistent with its Third World debt
  strategy, a Reagan administration official said.
      The official's comments also suggest that debtors' pleas
  for interest rate concessions should be treated much more
  seriously by the commercial banks, in cases where developing
  nations are carrying out genuine economic reforms.
      In addition, he signaled that the banks might want to
  reconsider the idea of a "megabank," where Third World debt would
  be pooled, and suggested the administration would support such
  a plan, even though it was not formally proposing it. At the
  same time, however, the official expressed reservations that
  such a scheme would ever get off the ground.
      The Philippine proposal, together with Argentine
  suggestions that "exit bonds" be issued to end the troublesome
  role of small banks in the debt strategy, would help to
  underpin the flagging role of private banks within the plan,
  the official said in an interview with Reuters.
      "All of these things would fit within the definition of our
  initiative as we have asked it and we think any novel and
  unique approach such as those should be considered," said the
  official, who asked not to be named.
      In October 1985, Washington outlined a debt crisis strategy
  under which commercial banks and multilateral institutions such
  as the World Bank and the International Monetary Fund (IMF)
  were urged to step up lending to major debtors nations.
      In return, America called on the debtor countries to enact
  economic reforms promoting inflation-free economic growth.
      "The multilaterals have been performing well, the debtors
  have been performing well," said the official. But he admitted
  that the largest Third World debtor, Brazil, was clearly an
  exception.
      The official, who played a key role in developing the U.S.
  Debt strategy and is an administration economic policymaker,
  also said these new ideas would help commercial banks improve
  their role in resolving the Third World debt crisis.
      "We called at the very beginning for the bank syndications
  to find procedures or processes whereby they could operate more
  effectively," the official said.
      Among those ideas, the official said, were suggestions that
  commercial banks create a "megabank" which could swap Third World
  debt paper for so-called "exit bonds" for banks like regional
  American or European institutions.
      Such bonds in theory would rid these banks of the need to
  lend money to their former debtors every time a new money
  package was assembled, and has been suggested by Argentina in
  its current negotiations for a new loan of 2.15 billion dlrs.
      He emphasised that the "megabank" was not an administration
  plan but "something some people have suggested."
      Other U.S. Officials said Japanese commercial banks are
  examining the creation of a consortium bank to assume Third
  World debt. This plan, actively under consideration, would
  differ slightly from the one the official described.
      But the official expressed deep misgivings that such a plan
  would work in the United States.
      "If the banks thought that that was a suitable way to go,
  fine. I don't think they ever will."
      He pointed out that banks would swap their Third World
  loans for capital in the megabank and might then be reluctant
  to provide new money to debtors through the new institution.
      Meanwhile, the official praised the Philippine plan under
  which it would make interest payments on its debt in cash at no
  more than 5/8 pct above Libor.
      "The Philippine proposal is very interesting, it's quite
  unique and I don't think it's something that should be
  categorically rejected out of hand," the official said.
      Banks which found this level unacceptably low would be
  offered an alternative of Libor payments in cash and a margin
  above that of one pct in the form of Philippine Investment
  Notes.
      These tradeable, dollar-denominated notes would have a
  six-year life and if banks swapped them for cash before
  maturity, the country would guarantee a payment of 7/8 point
  over Libor.
      Until now, bankers have criticised these spreads as far too
  low. The talks, now in their second week, are aimed at
  stretching out repayments of 3.6 billion dlrs of debt and
  granting easier terms on 5.8 billion of already rescheduled
  debt. The country, which has enjoyed strong political support
  in Washington since Corazon Aquino came to power early last
  year, owes an overall 27.8 billion dlrs of debt.
      But the official denied the plan amounts to interest rate
  capitalisation, a development until now unacceptable to the
  banks. "It's no more interest rate capitalisation than if you
  have a write down in the spread over Libor from what existed
  before," the official said in comments suggesting some ought to
  be granted the rate concessions they seek. "Some people argue
  that (cutting the spread) is debt forgiveness... What it really
  is is narrowing the spread on new money," he added.
      He said the U.S. Debt strategy is sufficiently broad as an
  initiative to include plans like the Philippines'.
  

