U.S., Lending Agencies Discuss Support Plan for Latin America
By MICHAEL M. PHILLIPS
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The U.S. and major multilateral lending agencies are
considering a plan that would use the private sector to keep Brazil and the
rest of Latin America from being swamped by the Asian financial storm.
Under the proposal, which is just one of many being floated, Latin
American governments would issue new bonds partially backed by
guarantees from the World Bank and the Inter-American Development
Bank, according to people involved in the discussions. That approach
would encourage private investors to fund a bailout of the region, though it
wouldn't fully shield the multilateral agencies from risk. The Latin American
countries would have to adopt economic reforms in exchange for the
multilateral guarantees.
Informal Talks With IMF, Too
One drawback to the proposal is that it could take months to implement
--which may not be soon enough to help Brazil. In the meantime, the
International Monetary Fund and Brazil are continuing informal discussions
about a more traditional financial-rescue package. A senior IMF official
cautioned, however, that any IMF deal would also require Brazil to make
difficult economic reforms, especially reductions in its swollen budget
deficit.
With dollars continuing to leave Brazil, momentum is building for some sort
of international response that would likely pool resources from the IMF,
the World Bank, the IDB, the U.S. and other countries. None has
released any official projection of the rescue package's size, but the IMF,
IDB and World Bank could put together an estimated $25 billion to $30
billion, should the need arise. Funds from other sources -- such as private
and bilateral lenders -- could bring the total to around $50 billion. "At this
stage," the IMF official told reporters, "no formal decisions whatsoever
have been taken." As the Asian crisis has deepened, investors have grown
increasingly nervous about other emerging markets, including Latin
America's economic powerhouse, Brazil. The outpouring of dollars has put
pressure on Brazil's currency, and has made it more difficult for Brazil's
government and private sector to pay back their huge foreign debt. At the
end of June, Brazil's private sector owed $140 billion to foreign lenders,
while the public sector's foreign debt totaled $86 billion.
Economic Domino Theory
Investors and policy makers alike fear that if Brazil succumbs to the Asian
troubles, other major Latin American countries such as Argentina and
Mexico could follow. For the U.S., Latin America represents an even
more important trading partner than Asia.
Brazilian President Fernando Henrique Cardoso has called on
industrialized nations to set up a "contingency fund" to help Latin America
stem the spread of the Asian financial crisis -- a broad proposal that the
IMF official stressed was "not central" to the discussions.
"Nobody suggests a fund with softer, gentler conditionality than the
IMF's," the IMF official said. "The idea of the contingency fund is there,
but I understand that nobody imagines that it could be activated outside
the context of agreements with us." A more likely outcome would be the
usual country-by-country negotiations in which needy nations would
receive financing in return for adopting sound economic policies. Already,
the Brazilians have signaled their commitment to precisely the kind of
reforms they know will be critical to winning international financial support.
U.S. Treasury officials have made clear their willingness to assist Brazil,
but thus far they have been vague about how. Should a cash infusion be
needed, one possible tool is the Exchange Stabilization Fund, which the
administration used to help Mexico in 1995, prompting fierce criticism
from Congress. With the House resisting an $18 billion boost in IMF
funding, the administration may not be eager to specify its options for
Brazil.
Separately, the IDB this week approved its largest loan ever, a $1.1 billion
loan to support Brazilian micro-, small- and medium-sized enterprises. The
bank said the project was unrelated to the most recent financial crisis. |
