INTERNATIONAL DEBT RELIEF: TRENDS AND KEY ISSUES

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Trends and Key Issues
International Debt Relief:
An Intelligence Assessment
25X1
Secret
GI 84-10050
March 1984
Directorate of
Intelligence
581
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Trends and Key Issues
International Debt Relief:
This paper was prepared b
Office o V o a issues.
Directorate of
Intelligence
25X1
25X1
OGI,
directed to the Chief, International Finance Branch,
Comments and queries are welcome and may be
Secret
GI 84-10050
March 1984
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International Debt Relief:
Trends and Key Issues F_
Key Judgments A record 25 LDCs and East European countries obtained debt relief
Information available totaling $55 billion during 1983, compared with $10 billion in relief
as of l March 1984 recorded in 1982. In contrast to previous years, commercial banks, foreign
was used in this report.
governments, and multilateral institutions combined their efforts to provide
large-scale debt relief packages for major debtors such as Mexico, Brazil,
and Yugoslavia. These packages involved new money as well as restructur-
ing of current obligations and were usually tied to the debtor's adoption of
an IMF adjustment program.
The outlook for 1984 is one of continued debt repayment difficulties and
additional restructurings; in fact, both the number of restructurings and
the volume of debt involved should surpass last year's levels. Sluggish
export performance, continued high real interest rates, large principal
repayments, and the reluctance of banks to increase their exposures will
keep restructuring activity high. At present 30 countries are seeking debt
relief, including Argentina, Brazil, Venezuela, Nigeria, the Philippines,
Poland, and Yugoslavia; 21 of these countries restructured debt last year.
Several issues that could make future negotiations difficult are:
? Debtors' compliance with their IMF-supported programs will again be a
very important issue. While bankers believe stringent conditionality to be
essential, debtor countries are increasingly emphasizing the substantial
political risks that austerity entails.
? Recent debt restructurings have postponed payments to the latter part of
the 1980s, and we expect debtors will probably require additional
financial relief. The ability of debt-troubled countries to service their
restructured debts would be adversely affected by several external
factors: a rise in real interest rates, a slowing in OECD growth, an
increase in OECD trade restrictions, or a major oil shock.
? Some debtor countries are becoming bolder in their negotiating stances,
insisting on more favorable terms-longer maturities and grace periods,
lower interest spreads, and reduced front-end fees. Latin American
countries have also called for a new approach to handling the debt
problem that would include a sharing of responsibility between debtors
and creditors for finding solutions and assuming losses.
iii Secret
GI 84-10050
March 1984
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? The threat with potentially the most serious consequences for the
resolution of debt problems is some form of radical action by the
debtors-a debtors' cartel, an explicit repudiation of debt, or a prolonged
refusal to make debt service payments. However, at this time we believe
there is little probability of such occurrences.
We believe most restructuring requests in 1984 will be met. However, we
cannot discount the possibility that mounting popular resistance to auster-
ity may bring irresistible political pressures to bear on some debtor
governments, jeopardizing their IMF programs, restructuring exercises,
and new loans. Also, some debtors such as Argentina have already begun
to consider alternate approaches to resolving their debt servicing difficul-
ties, several of which may prove highly contentious to creditors during
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Key Judgments
The Legacy of 1983
? More Restructurings in 1984
Key Issues for 1984 and Beyond 8
IMF Programs and Political Repercussions 8
Implications of Continued Restructurings 8
Debtors' Demands 9
Potential Radical Actions 9
A. Key Debtors: Chronology of Debt Relief Activities
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LDC and East European Debt Restructurings, 1975-83
Secret Vi
This graph lists restructurings
by date of the signed
agreement. Thus an agreement
listed in one year may involve
maturities in previous or
subsequent years.
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International Debt Relief:
Trends and Key Issues--
The Legacy of 1983
A record 25 LDCs and East European countries
obtained debt relief last year. The amount of debt
restructured'-nearly $55 billion-far exceeded the
$10 billion figure registered in 1982 (see figure 1).
Over half of the 36 reschedulings and refinancings
consisted of debt owed to private creditors with the
remainder owed to official sources (see table 1).F_
In addition to the sheer magnitudes involved, several
other developments set 1983 apart:
? The simultaneous restructuring of debt by several
large debtors was unprecedented. While some ob-
servers were concerned about the ability of the
international financial system to handle this situa-
tion, the task has been accomplished thus far with-
out pushing the system to the breaking point.
debtors. Failure to comply led to a rapid deterioration
in a country's ability to service its debt because of the
debtor's dependence on new bank disbursements.
The impact of noncompliance is underscored by the
experience of five major debtor countries that failed
to meet IMF targets during 1983 (see table 2):
? The IMF withheld two $325 million disbursements
to Argentina in August and November due to a
series of violations of Fund criteria including accu-
mulation of arrearages on external debt, discrimina-
tion against British firms, and failure to meet
performance targets on the public-sector deficit and
central bank holdings of domestic assets. Buenos
Aires's noncompliance also caused banks to with-
hold $1.0 billion of new credits arranged in early
1983.
? About one-third of new medium- and long-term
syndicated loans were tied to debt rescheduling
packages. Nearly all of this "involuntary" lending
went to Latin American debtors.
The Role of the IMF. A significant change that
occurred last year was the more active role played by
the IMF in the debt relief process. Debtors' compli-
ance with IMF-supported adjustment programs be-
came a central issue as new lending and commercial
and official debt relief exercises were more closely
linked to the status of a debtor's relations with the
Fund. As in the past, both private and official credi-
tors demanded that a debtor country first seek an
IMF arrangement before they would agree to a
restructuring. In 1983, however, commercial banks
directly tied disbursements of new credits to the
quarterly IMF performance targets of several large
' In this paper "restructuring" refers to a renegotiation of the terms
of existing debt by a country in payments difficulty and covers both
rescheduling and refinancing. When debt is "rescheduled," existing
terms-usually the interest spread and the maturity-are altered
through agreement between debtor and creditor. Under a debt
"refinancing," terms are also altered as new funds are advanced to
the debtor to replace funds provided under an earlier agreement._
? The IMF declared Brazil out of compliance with its
first-quarter 1983 targets on 1 June. As a result,
Brazil was unable to draw $410 million and $640
million from the IMF and commercial banks, re-
spectively, in both June and September. Because
Brasilia and the IMF did not reach agreement until
November on a revised stabilization package, the
Fund and the banks withheld disbursement until
yearend.
? Chile missed its first-quarter performance targets
on domestic assets held by the central bank and net
foreign reserve holdings. Santiago, thus, was unable
to draw $54 million from the Fund in March. The
IMF approved a shadow program that brought
Chile back on track, and Chile was again able to
borrow from the IMF. Banks disbursed the first
tranche of a $1.3 billion loan in August.
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Table 1
LDC and East European Debt Restructurings in 1983
Amount
Restructured
(million US $)
Maturity
(years)
Grace
Period
(years)
Interest Rate
(percentage
points
above LIBOR)
New Money
Commitments a
(million US $)
Argentina
November
5,500
5.0
3.0
NA
1,500
Brazil
February
4,800
8.0
2.5
2.125
4,400
Chile
July
1,300
7.0
4.0
2.125
1,300
Costa Rica
September
615
8.0
4.0
2.250
225
Cuba
December
130
7.0
3.0
2.250
0
Dominican Republic
September
568
5.0
1.0
2.250
0
Ecuador
October
1,210
6.0
1.0
2.250
431
Malawi
March
57
6.5
3.0
1.875
0
Mexico
August/September/
October/December
22,824
8.0
4.0
1.875
5,000
Nigeria
July
September
1,350
480
3.0
2.8
5.5
3.5
1.500
1.500
0
0
Panama
September
185
6.0
3.0
2.250
93
Peru
July
380
8.0
3.0
2.250
450
Poland
October
1,400
10.0
5.0
1.750
0
Romania
June
601
6.5
3.5
1.750
0
Togo
October
84
7.3
NA
2.000
0
Uruguay
July
629
.6.0
2.0
2.250
240
Yugoslavia
September
1,400
6.0
3.0
1.750
600
Zambia
October
67 ?
7.0
3.0
2.250
0
Brazil
November
3,800
9.0
5.0
Central African
Republic
July
13
9.5
5.0
Costa Rica
January
200
8.3
3.8
Cuba
March
413
8.5
3.5
Ecuador
July
200
7.5
3.0
Liberia
December
22
10.0
5.0
Malawi
October
30
8.0
3.5
Mexico
June
2,000
5.5
3.0
Morocco
October
980
8.0
4.0
Niger
November
27
10.0
5.0
Peru
July
1,044
7.5
3.0
Romania
May
148
6.0
3.0
Senegal
December
8
9.0
4.0
Sudan
February
536
16.0
6.0
Togo
April
300
9.5
5.0
Zaire
December
1,000
11.0
5.0
Zambia
May
375
9.5
5.0
Source: IMF, Embassy, and press reports.
a Funds committed by banks and associated with the restructuring.
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Restructurings, Official and Private
Official. Official creditors rescheduled more than
$11 billion in 1983. The forum for nearly all of the
official reschedulings was the Paris Club where a
group of creditor governments met at the debtor's
request to renegotiate the debtor's obligations within
a common framework. The terms reported in IMF
and other financial publications were generally con-
sistent with those of earlier reschedulings-maturi-
ties of 7.5 to 9.5 years, grace periods of three to five
years, with interest rates determined on a bilateral
basis.
The Paris Club normally reschedules arrearages but
tries to exclude short-term obligations and debt that
has been previously rescheduled. In 1983, however,
two countries were deemed to have exceptionally
severe debt problems and received extraordinary debt
relief. Sudan had both previously rescheduled debt
included in its agreement, along with a maturity of 16
years including a six-year grace period, and capital-
ization of moratorium interest. Zaire also received
relief on previously rescheduled debt.
Private. Private creditors agreed in 1983 to restruc-
ture nearly $44 billion. The terms for the private
restructurings with commercial banks generally in-
cluded maturities of seven to eight years including
two to three years of grace and interest spreads of 25X1
1.75 to 2.25 percentage points above LIBOR. In
addition, debtors were charged a rescheduling fee of
1.0 to 1.5 percent of the total amount rescheduled. F__1
Bank reschedulings usually covered payments due in
a 12-month consolidation period, but exceptions were
made to include debt owed over two years as in the
cases of Costa Rica and Uruguay. In nearly all
agreements, at least 90 percent of principal repay-
ments due in the consolidation period were resched-
uled, with over half involving 100 percent of principal.
Short-term debt was covered in about half of the
bank agreements. Several private reschedulings in-
cluded arrearages on principal repayments. Interest
arrearages were not rescheduled except in the case of
Sudan. However, the agreements on Costa Rica and
Poland included revolving short-term trade facilities
that were equivalent to rescheduling of interest
payments
Banks remained unwilling to reschedule debt at less
than market rates, a condition sought by some major
debtors. However, this policy required that banks
maintain or increase their exposure to countries with
large bank debts in order to keep these countries'
interest payments current.
? Peru failed to comply with its public-sector deficit
target and was unable to draw $70 million from the
Fund in September. Commercial banks responded
by withholding two $100 million disbursements. In
addition, negotiations between the Government of
Peru and the World Bank for a structural adjust-
ment loan of $200 million were suspended until
Lima reached an agreement with the Fund.
? In early September the IMF determined that the
Philippines was out of compliance with its standby
facility, and the Fund suspended further disburse-
ments until Manila agrees to make major changes in
its economic policies. Although no commercial bank
credits were tied to IMF disbursements, failure to
comply has delayed negotiations on a private credi-
tor rescue package.
Government reluctance to accept an IMF-supported
austerity program also held up debt relief measures in
both Nigeria and Venezuela. Nigeria avoided coming
to terms with the IMF throughout 1983; a major
sticking point in negotiations was the government's
reluctance to devalue the naira. Although Western
banks agreed to refinance $1.4 billion of short-term
debt in July and another $500 million in September,
yearend arrearages stood at about $5 billion. We
believe bankers are unlikely to agree to major new
lending until Lagos comes to terms with the IMF.
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Table 2
Selected IMF Standby and Extended Arrangements,
as of December 1983 a
Date of
Arrangement
Expiration
Date
January 1983
April 1984
Barbados
October 1982
May 1984
Central African Republic
April 1983
April 1984
Chile
January 1983
January 1985
Ecuador
July 1983
July 1984
Ghana
August 1983
August 1984
Guatemala
August 1983
December 1984
Haiti
November 1983
September 1985
Hungary
December 1982
January 1984
Kenya
March 1983
September 1984
Korea, South
July 1983
March 1985
Liberia
September 1983 September 1984
Mali
December 1983 May 1985
Mauritius
May 1983 August 1984
Morocco
September 1983 March 1985
Niger
October 1983
December 1984
Panama
June 1983
December 1984
Philippines
February 1983
February 1984
June 1981
June 1984
Amount of Amount Comments
Agreement Available,
1984
1,650 1,000 b Argentina fell out of compliance in
August 1983. Currently negotiat-
ing for a new loan.
35 10
20 10
550 230
173 85
262 180
126 100
65 35
523 Fully drawn On 13 January 1984 Hungary won
approval for a one-year, $450 mil-
lion standby program.
194 110
633 400
61 40
45 20
54 40
315 200
20 12
165 100
347 250 b Manila is negotiating a new 18-
month, $650 million standby for
1984.
1,213 515 b Bucharest will probably allow the
current agreement to expire with-
out further drawdown before a new
agreement covering 1984-85 is
signed.
Senegal
September 1983 September 1984
69
45
Solomon Islands
June 1983 June 1984
2
1
Somalia
July 1983 January 1984
66
Fully drawn
Sri Lanka
September 1983 July 1984
110
65
Sudan
February 1983 February 1984
187
25
Togo
March 1983 April 1984
24
8
Turkey
June 1983 June 1984
248
150
Uganda
September 1983 September 1984
105
60
Uruguay
April 1983 April 1985
416
215
Western Samoa
June 1983 June 1984
4
1
Zaire
December 1983 March 1985
250
200
Zambia
April 1983 April 1984
234
130
Zimbabwe
March 1983 September 1984
333
220
Negotiations under way for 1984
program.
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Table 2
Selected IMF Standby and Extended Arrangements,
as of December 1983 a (continued)
Date of
Arrangement
Expiration
Date
Amount of
Agreement
Amount
Available,
1984
Extended Fund Facility
arrangements
Grenada
August 1983
August 1986
15
6b
November 1981 November 1984 5,250
1,785
Ivory Coast
February 1981
February 1984
533
35
Jamaica
April 1981
April 1984
157
80 b
Malawi
September 1983 September 1986
110
30
Mexico
January 1983
December 1985
3,752
1,600
Peru
June 1982
June 1985
715
350 b
Comments
Talks have begun for a revised one-
year agreement.
India has indicated it will not draw
the full amount available.
Jamaica has abandoned its EFF
and is negotiating a standby loan
for $180 million.
Peru fell out of compliance and is
negotiating a new IMF facility.
a Countries with Fund agreements that expired in December b Access to these funds is currently suspended because of
include Costa Rica, Honduras, South Africa, Thailand, and noncompliance.
Yugoslavia.
Venezuela also failed to renegotiate maturing debts
during 1983 as Caracas refused to enact a meaningful
stabilization program in a presidential election year.
Since the December elections, moreover, the govern-
ment has still not entered into serious negotiations
with the Fund. Commercial banks may agree, how-
ever, to renegotiate Venezuela's debt without a Fund
arrangement because the country does not require any
new credits.
More Restructurings in 1984
We believe this year will bring a continuation of debt
repayment difficulties and additional reschedulings
and refinancings; in fact, both the number of restruc-
turings and the volume of debt involved should sur-
pass last year's levels. Sluggish export performance,
continued high real interest rates, large principal
repayments, and the reluctance of banks to increase
their exposures will keep restructuring activity high.
The amount of external financing required by LDCs
and East European countries will remain large this
year despite the painful balance-of-payments adjust-
ments many of these countries have made (see table
3). We estimate the combined current account deficits
of LDCs and East European countries will total $66
billion.' In addition, non-OPEC LDCs plan to in-
crease reserves by about $9 billion, according to a
recent- US Treasury estimate, which would mean that
about'$75 billion in new money will be required to
finance the expected current account deficits and the
planned increase in foreign exchange reserves. New
lending should be sufficient to cover these needs (see
inset "The Sources of LDC and East European
Funding").
I This total consists of an estimate by the US Treasury for non-
OPEC LDC current accounts and CIA estimates of OPEC and
East European current accounts.
25X1
25X1
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Table 3
LDCs and Eastern Europe: External
Financing Needs and Sources a
Billion US $ The Sources of LDC and East European Funding
Needs
Total
115
151
158
Current account deficit
50
66
66
Of which interest:
68
77
82
Principal repayments (medium
65
79
83
and long term)
Reserves buildup
0
6
9
Sources
Total
115
151
158
Direct investment (net)
12
11
11
Private loans (medium and long
term)
55
30
25
Official loans and grants
45
48
50
Short-term loans (net)
-6
-2
-6
IMF (net)
4
9
8
Restructured debt
5
55
70
a Figures taken from CIA, Treasury, and OECD estimates.
b Estimated from preliminary data.
c Projected.
However, $83 billion in medium- and long-term prin-
cipal repayments also will come due this year, an
amount far in excess of the repayment ability of these
countries. The bulk of these obligations will have to be
restructured or allowed to lapse into arrearages. Ac-
cording to Embassy and financial reporting, some 30
to 40 debtor nations will seek approximately $70
billion in debt relief this year. Some 30 countries are
currently seeking or have already agreed to restruc-
ture in 1984. Countries that will restructure their debt
that did not do so in 1983 probably will include
Venezuela, the Philippines, and Ivory Coast (see
tables 4 and 5).
According to Embassy and financial reporting, key
developments in debt relief operations now under way
include the following:
? Argentina's new government would like to resched-
ule 1982 and 1983 amortization payments and
arrearages along with debt maturing in 1984. Ar-
gentina has about $12 billion in 1982-84 public-
sector maturities.
An important source of funding for LDCs and East-
ern Europe will decline again this year as bank
lending attitudes remain extremely cautious in the
face of persistent external payment difficulties. On
the basis of reporting in financial publications and
discussions with financial analysts, we estimate that
new bank lending to LDCs and Eastern Europe will
total only $25 billion in 1984, down from $30 billion
last year and from $55 billion in 1981. Most new
commercial bank lending to financially troubled
countries will be tied to debt relief packages. On the
L
h
f
as is o
negotiations in progress, we estimate t
is
form of involuntary lending will amount to roughly
$16 billion-or almost 65 percent-of total new bank
lending this year.
Increases in capital from other sources will about
offset these declines in bank lending. Official flows
from developed countries and multilateral institu-
tions-the most important source offinancingfor
many of the poorest developing countries-should
increase slightly over 1983 levels to about $50 billion,
according to the OECD. The OECD notes that, as a
result of declining flows from surplus OPEC coun-
tries, developing country Official Development
Assistance receipts are not expected to increase
markedly in 1984. We believe the IMF will not
encounter any difficulties in meeting program com-
mitments during 1984; according to Treasury esti-
mates, the Fund should provide roughly $8 billion in
program funds this year, of which over $5 billion will
go to major debtors.
The US Treasury estimates that total foreign direct
investment flows to developing countries will proba-
bly be in the range of $10-I1 billion in 1984, roughly
equal to last year's performance. The volume of
investment is somewhat misleading, however, as
many foreign enterprises have been unable to secure
foreign exchange to remit dividends. The resulting
forced retained earnings last year accounted for more
than a third of total foreign direct investment, and we
estimate that some $4.5 billion-or about 40 per-
cent-of projected total 1984 direct investment will
be in the form of blocked remittances.
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Table 4
LDCs and Eastern Europe:
Debt Restructurings in 1984 a
Africa/
Middle East
Central African
Republic (o)
Ivory Coast (o,c)
Liberia (o,c)
Madagascar (o,c)
Morocco (o,c)
Mozambique (o,c)
Nigeria (c)
Senegal (o,c)
Sudan (o)
Sierra Leone (o)
Togo (o,c)
Uganda (o,c)
Zaire (o,c)
Zambia (o,c)
Angola (o,c)
Guinea-
Bissau (o,c)
Somalia (o)
Egypt (o,c)
Mauritania (o,c)
Nigeria (o)
Upper Volta (o)
Asia
Philippines (o,c)
Latin
America
Argentina (o,c)
Bolivia (c)
Brazil (c)
Chile (c)
Costa Rica (o)
Cuba (o,c)
Dominican
Republic (o)
Ecuador (c)
Honduras (c)
Mexico (c)
Nicaragua (c)
Peru (o,c)
Venezuela (c)
Jamaica (c)
Chile (o)
Colombia (c)
Costa Rica (c)
Guyana (c)
Paraguay (c)
Venezuela (o)
Eastern
Europe
Poland (o,c)
Yugoslavia (o,c)
a o = official, c = commercial.
b See appendix A for a chronology of debt restructuring activities of
II key debtors.
c See appendix B for a description of potential 1984 debt
restructurings.
? Brazil has rescheduled all medium- and long-term
debt maturing in 1984. The rescheduling, which
amounts to about $5.3 billion, is spread over nine
years, with five years of grace, and would carry an
interest spread of 2.0 percentage points above
LIBOR (London interbank offered rate).
Table 5
Major Debtors: Selected
1984 Bank Restructurings
Country
Amount To Be
Restructured
Related
New Money
Total
58.1
13.0
Argentina
12.0
3.2
Brazil
5.3
6.5
2.1
0.8
0.6
0.5
0.8
0.1
0.5
0.0
Nigeria
5.0
0.0
Peru
1.7
0.0
Philippines
10.5
1.7
Poland
1.9
0.2
16.5
0.0
1.2
0.0
? Venezuela is seeking to refinance approximately
$13.1 billion in deferred 1983 principal repayments
and would like to stretch out payments on another
$3.4 billion coming due in 1984. The new govern-
ment states that a debt restructuring will be given
highest priority, but negotiations are likely to take
several months.
? Nigeria has pledged, in the wake of the recent coup,
to honor all previous reschedulings and legitimate
repayment requests and to press for an IMF ar-
rangement. Lagos must bring current nearly $500
million in outstanding payments under letters of
credit and reschedule at least $5 billion in overdue
payments under suppliers' credit agreements.
? The Philippines has requested that commercial
creditors reschedule $1.5 billion in medium- and
long-term credits maturing through June 1985,
along with $9 billion in short-term credits coming
due during the same period. The Philippines has
also petitioned government creditors for a resched-
uling of $4 billion in official obligations.
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? Poland has made substantial progress toward a
precedent-setting, multiyear bank rescheduling
agreement. The 1984 bank agreement is expected
by bankers to consolidate all future principal repay-
ments not covered under the three previous resched-
ulings. In addition, bank creditors are also offering
more than $150 million in trade financing. Warsaw
has also requested a multiyear rescheduling of
nearly $12 billion-including $7 billion in arrear-
ages on official debt accumulated since 1981-
pressed for new credits from governments, and
attempted to link any Paris Club agreement to
negotiations for IMF membership.
? Yugoslavia and Western creditor governments have
agreed to refinance all principal payments coming
due in 1984-over $500 million-subject to final
approval of an IMF program. At Yugoslavia's
request, agreement was reached outside a formal
Paris Club session. We believe commercial creditors
will probably assent to a request to refinance $1.2
billion in 1984 maturities.
Key Issues for 1984 and Beyond
While we believe most restructuring requests in 1984
will be met, several issues could make negotiations
difficult in the coming months and years.
IMF Programs and Political Repercussions. Debtors'
compliance with their IMF austerity programs will
again be a very important issue in 1984. Noncompli-
ance with Fund programs already jeopardizes negoti-
ations on second- and third-round debt relief pack-
ages, especially for countries asking for new loans. For
the most part, we believe creditors must see an IMF
agreement in place, perceive that the country is
adhering to its program, and believe it will achieve an
eventual improvement in its balance of payments
before restructuring payments and making additional
Despite this general view, commercial banks are
under pressure to refinance Venezuela's public-sector
debt without an IMF program in place. The banks
argue that, because Venezuela does not need new
money, debt restructuring without an IMF arrange-
ment would not create a precedent. Nonetheless, we
believe that restructuring in the absence of Fund
conditionality could reduce the incentive for other
While bankers believe stringent conditionality to be
essential, debtor countries are increasingly emphasiz-
ing the substantial political risks that austerity en-
tails. Protests and violence against austerity measures
already have erupted in Tunisia; when the govern-
ment removed subsidies on cereal products in late
December 1983, protests forced the authorities to
rescind the move a week later. Moroccan officials
have also expressed concern that strict adherence to
their standby program risks serious disturbances simi-
lar to the 1981 food-price riots. The Siles government
in Bolivia is being confronted with popular demon-
strations and threatened by coup plotting after man-
dating price increases for basic goods and a 60-
percent devaluation.
Increased domestic opposition to austerity has con-
tributed to calls for relaxed conditionality. Govern-
ments in Nigeria and the Philippines have balked at
taking austerity measures; they allowed foreign ex-
change reserves to drop and arrearages to mount,
rather than impose politically explosive devaluations
and other unavoidable adjustment measures. In the
months ahead, we expect several governments, includ-
ing those of Argentina and Morocco, to press vigor-
ously for more lenient adjustment programs.
Implications of Continued Restructurings. Recent
debt restructurings have merely postponed repayment
problems to the latter part of the 1980s. We believe
that commercial banks will not voluntarily lend to
cover all amortization payments in the years ahead,
particularly to major Latin American debtors. Conse-
quently, when these payments come due-most large
principal repayments start during 1986-87-we ex-
pect debtors will again require additional financial
relief. As restructurings by major debtors continue,
the risk of losin the participation of some commercial
banks increases.
West European banks will take a less conciliatory
posture in negotiations in future South American debt
restructurings. To keep debt relief packages from
unraveling, we believe all lenders and borrowers will
have to remain committed to the current renegotiation
strategy.
debtors to maintain austerity.
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Confronted with the prospect of continued restructur-
ings, the international financial community is also
concerned about global economic conditions, which
must be favorable for countries to service their debts.
global conditions Brazil's credit needs could decline
considerably.' However, in the event of a global
economic shock-a rise in real interest rates, a slow-
ing in OECD growth, an increase in OECD trade
restrictions, or a major oil shock-the analysis indi-
cated Brazil's financial needs would grow to levels
that lenders would be unwilling to finance. If some
shock hit the world economy over the next few years,
we believe that LDC and East European debt servic-
ing problems would intensify.
Debtors' Demands. We believe the issue of debtors'
demands for easier terms from creditors will surface
with increasing frequency during this year. Press
reporting indicates that many large debtor countries
are becoming bolder in their debt negotiating stances,
requesting more favorable terms-longer maturities
and grace periods, lower interest spreads, and reduced
front-end fees-on both new and existing loans. For
example, Argentine Economy Minister Grinspun stat-
ed to that country's advisory committee that the
government wanted easier loan terms on 1982-83
maturities than those given the state airline company,
whose rescheduling was to serve as the model for
other agreements.
Banks are already agreeing to reduce interest spreads
on new or existing loans to some debtors. For exam-
ple, Mexico's bank advisory committee agreed to cut
0.75 percentage point off the interest spread charged
in the banks' $3.8 billion new money loan for 1984.
Peru received better terms on a $2.6 billion refinanc-
ing plan in February than it got in 1983. We believe
banks also may ease loan terms-including lengthen-
ing of maturities and grace periods-on credits to
other debtors showing progress in adjusting their
economies
Some debtors, however, are seeking more substantial
relief and are calling for a sharing of responsibility
between debtors and creditors for solving the debt
problem and assuming losses. Press reports indicate
that Latin American governments are looking for
ways to get creditors to ease loan terms, even substan-
tially beyond those recently given to Mexico, Brazil,
and Peru. The OAS Special Committee on Finance
and Trade is studying the possibility of tying debt
servicing to growth rates. The Quito Declaration-
issued by a group of 30 Latin American nations at a
conference in January-recommends that debtors use
only a reasonable percentage of export earnings to
service their debt obligations.
Bankers have said they will oppose any proposals to
charge interest rates below market-related rates such
as LIBOR, which is roughly the banks' marginal cost
of funds. Many bankers argue that it is counterpro-
ductive for a country to seek below-market interest
rates when restructuring its debt, even if banks can be
forced to accede to such rates. They note that, while
such terms would address the debtors' immediate
repayment problem, they would so alienate the banks
involved as to almost certainly jeopardize the debtors'
longer term access to new credits.
Potential Radical Actions. Probably the most serious
threat to the resolution of debt problems, although at
this time a low probability one, is some form of
radical action by the debtors-a debtors' cartel, an
explicit repudiation of debt, or a prolonged refusal to
make debt servicing payments. The establishment of a
cartel currently seems less likely following the Orga-
nization of American States conference held last
September to discuss mutual debt problems. The mild
proposals following the conference allayed creditors'
fears. In addition, several Embassy reports indicate
that there are major impediments to joint action
including: fears of the large debtors that there will be
long-term damage to their creditworthiness and reluc-
tance of smaller debtors to act in the absence of a
major debtor. We believe that, as long as Mexico and
Brazil continue to avoid radical proposals, such as a
debtors' cartel, joint action is unlikely
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We also believe that the odds of a country's repudiat-
ing its debt or declaring a long-term moratorium on
all debt service payments remain low because a debtor
can receive most of the same benefits by merely
letting arrearages grow and still maintain relations
with its creditors. The possibility of a debtor country
unilaterally determining which repayment obligations
it would honor was raised in late 1983 and early 1984.
Argentina's newly elected Alfonsin government made
a reference to the repayment of "legitimate external
debt" as a part of its platform. In addition, Nigeria's
General Buhari pledged in January to honor all
"genuine" repayment obligations. Subsequent discus-
sions have not revealed any changes in these coun-
tries' approach to debt renegotiations as suggested by
such references
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Appendix A
Key Debtors: Chronology
of Debt Relief Activities
Argentina
The Falklands conflict in April 1982 resulted in
Argentine trade disruptions, large capital outflows,
and payments arrearages exceeding $1.4 billion. Ar-
gentina's problems were compounded by the severe
bunching of amortization payments; by August 1982
roughly half of total external debt was scheduled to
fall due before the end of 1983. Argentina began
negotiations with the IMF in September 1982 on a
stabilization program supported by a standby loan. As
a condition for Fund approval, the IMF requested
that creditor banks undertake a three-part package
that included disbursement of the first tranche of a
$1.1 billion bridge loan; $1.5 billion of new medium-
term financing for 1983; and the rescheduling of
principal falling due in 1983, including short-term
maturities. The bridge loan was signed in late Decem-
ber 1982 and the first tranche of $600 million was
disbursed early the next month.
Buenos Aires's request for a standby arrangement and
compensatory financing totaling $2.2 billion was ap-
proved by the IMF in late January 1983, and $900
million was disbursed. By May Argentina received its
first-quarter standby tranche, but negotiations with
private banks for the medium-term loan and the
rescheduling of maturing debt still had not been
completed. Banks delayed talks because of the dis-
crimination against British firms and Argentine bank-
ruptcy laws. The government was unable to draw
$325 million from the IMF in August when the
central bank failed to meet its quantitative target on
net domestic assets, which fueled an inflation rate
more than double the rate targeted under the IMF
program. Argentina also faced noncompliance be-
cause of debt arrearages, foreign exchange restric-
tions, and a rising fiscal deficit.
In late 1983 Argentina's central bank began issuing
bonds and promissory notes to refinance about $5.5
billion in private-sector debt carrying an official
exchange rate guarantee. This enabled commercial
bankers to disburse the first tranche of the $1.5 billion
new money loan on 1 December 1983, despite Argen-
tina's noncompliance with its IMF program. Economy
Minister Grinspun has publicly stated that Argentina
wants to reschedule as a single package past debt
from 1982 and 1983 with about $12 billion in public
and private debt due in 1984
Argentina will require at
least $1 billion in new money from commercial banks
in 1984 in addition to the $1 billion in undisbursed
funds from the $1.5 billion medium-term loan.
Brazil
The abrupt drying up of bank lending after the
Mexican liquidity crisis in August 1982 precipitated a
severe payments crisis in Brazil. Nearly one-half of
Brazil's $7.5 billion reserves were drawn down by
yearend. Late in 1982 Brazilian authorities initiated
discussions with the IMF to obtain an extended
arrangement and with international banks to request
a four-part debt rescue package-now referred to as
Phase I. Brazil's private bank creditors agreed in
February 1983 to provide $4.4 billion in new medium-
term loans (Project 1) and to refinance about $4.8
billion of 1983 maturities (Project 2). Commercial
banks disbursed $2.5 billion in March and tied three
additional $633 million disbursements to IMF draw-
ings. In Phase I the banks also pledged to roll over
$8.8 billion of short-term, trade-related debt (Project
3) and to reestablish interbank lines (Project 4) to
about $10.8 billion. However, from the outset, short-
term financing fell considerably short of proposed
levels.
At the same time the banks agreed to the Phase I
package, the IMF approved Brazil's request for Fund
resources totaling $5.9 billion during 1983-85 with
initial drawings of about $1.2 billion. Further draw-
ings under the extended facility were to become
available during 1983 on 31 May, 31 August, and 30
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Secret
November. However, these drawings were delayed
until November because Brazil was unable to meet
most performance criteria for the first and second
quarters of 1983. In November the IMF Executive
Board agreed to modify the performance criteria. The
IMF disbursed $1.2 billion to Brazil on 30 November,
and commercial banks in turn released $1.9 billion.
Most of the money was used to repay bridge loans
from the Bank for International Settlements (BIS)
and other banks and interest approaching 90 days in
By fall 1983 Brazil had obtained agreements in
principle from creditors for another rescue package-
known as Phase II-to meet its financing needs for
the rest of 1983 and 1984. Brazil's bank advisory
committee agreed to an $11.8 billion new loan and
rescheduling package. Project 1 of the financing plan
is a $6.5 billion new money facility, and Project 2 is a
refinancing of about $5.3 billion in 1984 debt maturi-
ties. Brazil approached the Paris Club in mid-August
to reschedule official debt due in 1983 and 1984, and
on 23 November Western governments agreed to
reschedule $3.8 billion. In addition, Brazil is seeking
$2.5 billion in export credits from industrial countries.
Chile
The IMF approved a two-year standby arrangement
for Chile for about $550 million in January 1983. An
initial drawdown of $130 million was made in Janu-
ary, but a series of difficulties prevented Chile from
making further drawings until late 1983. In mid-
January the Chilean Government assumed greater
control of the country's banking system by liquidating
three financial institutions and intervening in the
operations of five others. The interventions upset
foreign bankers, and banks stopped all voluntary
lending to Chile. Chile requested a 90-day postpone-
ment of principal repayments on 31 January until
arrangements for a debt rescheduling with creditors
could be reached. The BIS provided a $350 million
bridge loan and commercial banks lent $180 million
before a $1.3 billion new money facility was signed in
July 1983. Chile's creditor banks also agreed in
principle in July to restructure over $2 billion of
public and private debt due in 1983 and 1984. So far,
four public-sector agencies have signed agreements
with commercial banks to restructure over $1.6 bil-
lion, according to press reports. Chile indicated it will
seek a medium-term bank loan from commercial
banks of about $780 million for 1984 financing needs,
which we believe will eliminate the need for additional
debt reschedulings in 1984.
Mexico
In August 1982 Mexico declared a moratorium on
principal payments on its external debt. Negotiations
began with the IMF for an extended arrangement and
with commercial banks for a restructuring of public-
sector debt and a major new loan. The Fund granted
Mexico in December 1982 a $3.8 billion extended
facility on the condition that private banks provide $5
billion in new money; the loan was put together in late
February 1983. The first drawing for $1.7 billion took
place on 24 March 1983, with the remaining drawings
conditional upon disbursements from the IMF during
Mexico thus far has kept in compliance with its IMF-
supported stabilization program. With its program on
track, Mexico obtained the necessary financing for
1983 from the IMF and commercial banks. In addi-
tion, about $22.8 billion in public-sector debt owed to
commercial banks has been restructured over eight
years. The first portion of the rescheduling package
with international banks was signed in August 1983
and consisted of three restructuring agreements total-
ing $11.4 billion. Five more government agencies
rescheduled debt in September amounting to $8.3
billion. Also, in October, several more public-sector
agencies signed agreements in New York to resched-
ule $2.8 billion. Eleven more agreements were signed
in December to reschedule $324 million
Mexican authorities announced a scheme in April
1983 to help private-sector firms reschedule debt to
foreign banks. A new trust fund-FICORCA-was
established to administer the program; by the 25
October 1983 closing date approximately $11.6 billion
had been entered into FICORCA. In November the
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Central Bank announced the creation of a second
trust fund in hopes of rescheduling remaining private-
sector debt. Also, in December, Mexico asked com-
mercial banks for a $3.8 billion loan for 1984; we
expect the loan to be signed by April.
Morocco
Morocco's foreign exchange earnings failed to keep
pace with rapidly escalating debt service costs during
the last three years; by mid-1982 Rabat had exhaust-
ed its foreign exchange reserves. In October 1983
Morocco's Western government creditors-through
the Paris Club-agreed to reschedule $980 million in
official debt falling due between September 1983 and
December 1984 over eight years, with four years of
grace. Arab governments did not participate in the
Paris Club accord but later rescheduled the $350
million they were owed under similar terms.
Morocco, on 9 September, requested that its creditor
banks agree to a 90-day standstill on principal repay-
ments, pending a rescheduling of commercial debt
falling due between September 1983 and December
1984. Negotiations are still under way, and press
reports indicate as much as $500 million in principal
may be rescheduled. However, attempts to persuade
banks to maintain their short-term credit and trade
finance lines at their August 1983 levels have met
with only limited success.
Morocco sought and obtained from the IMF in
September 1983 an 18-month, $315 million standby
arrangement. Rabat's ability to maintain the program
has now been called into question because of the
government's decision to reestablish food price subsi-
dies that were eliminated last December. Morocco
must find ways to reduce budget outlays or risk future
drawings under the Fund stabilization program. In
addition, commercial creditors may balk at signing a
rescheduling if the Fund program is suspended.
Nigeria
Nigeria fell into arrears on short-term trade credits in
mid-1982 due to reduced petroleum export receipts
and mismanagement of the country's financial affairs.
Nigeria's financial position continued to deteriorate
during the first half of 1983; by June the current
account deficit had swollen to nearly $1 billion. Lagos
remained current on medium- and long-term debt
repayments, but arrearages on short-term trade cred-
its amounted to over $6 billion by June 1983,
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Some 25 of Nigeria's principal commercial creditors 25X1
agreed in mid-July to refinance about $1.4 billion in
overdue letter-of-credit payments. The July agree-
ment, however, only covered one-fourth of Lagos's
arrearages and contained no formula for providing
new financing. In September Nigeria concluded a
second refinancing agreement covering approximately
$600 million in short-term arrearages not dealt with
under the former agreement. According to Embassy
reporting, the Fund prompted Nigeria to begin discus-
sions in November to refinance the remaining
$5 billion in trade arrearages, a necessary condition
for an IMF agreement. Since the 31 December coup,
those discussions have continued, but the new govern-
ment has.proved unwilling to discuss a restructuring
of medium-term debt, arguin that debt service is
current on these obligations. 25X1
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rescheduled to ease payment demands in late 1984.
Major General Buhari's pledge to honor "genuine"
debt obligations and to pursue talks with the IMF, the
World Bank, and foreign creditors is being viewed
favorably by the country's commercial creditors
~oubts about
Buhari's appreciation the depth of Nigeria's finan-
cial difficulties and his ability to formulate a strategy
to deal with the situation. We believe any attempt to
impose austerity measures-particularly a devalua-
tion, which the Fund has insisted must be a precondi-
tion to any adjustment program-will heighten the
chance for political turmoil.
Peru
The IMF approved a three-year extended arrange-
ment for Peru in June 1982, and drawings were made
through August 1983. Peru signed an agreement in
June 1983 with 275 international banks for an $830
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million financial rescue package, which included $380
million to pay off debt maturing between March 1983
and March 1984 and $450 million in new money to
balance its foreign accounts. Commercial banks also
agreed to maintain short-term credit lines of about
$2 billion. In addition, Peru reached agreement with
the Paris Club in July 1983 to reschedule more than
$1 billion in debt due to Western government credi-
tors between May 1983 and February 1985.
By late 1983, however, Peru could not comply with
IMF targets and sought to delay its November draw-
ing until a new program could be designed. The main
problem was the government's budget deficit; an IMF
team calculated that the deficit would top 9.0 percent
of GDP compared with the target of 4.1 percent.
Consequently, Peru's private bank creditors postponed
the disbursement of $200 million of the $450 million
new money loan. In February 1984 the IMF accepted
Peru's request for a new $275 million standby facility;
the IMF executive board will review the arrangement
in mid-April. Also in February, Peru agreed in princi-
ple with international banks to a debt relief package
that will restructure the government's 1984 maturi-
ties. About $1.7 billion in principal payments due this
year and next will be stretched out over nine years
with a five-year grace period. The agreement also
calls for banks to maintain about $880 million in
short-term trade credits.
Philippines
The Philippines first encountered lender resistance in
mid-1982, and that concern intensified by mid-1983
because of occasional hard currency shortages, the
country's high debt service ratio, and the uncertain
political environment. Philippine borrowers, unable to
access long-term sources of funds, borrowed heavily in
the short-term market. In addition, bankers shortened
loan maturities and charged Philippine borrowers
almost 2 percentage points over LIBOR-nearly tri-
ple the rates charged a year earlier-to roll over
existing credits. Capital flight accelerated in the wake
of the August 1983 assassination of opposition leader
Aquino, and government borrowers began to accumu-
late arrearages. In an effort to arrest the rapidly
deteriorating situation, the Central Bank assumed a
larger role in allocating foreign exchange.
The Philippines concluded a one-year $347 million
standby agreement with the IMF in February 1983,
but in early September the IMF suspended disburse-
ments after Manila failed to limit new short-term
borrowings. Negotiations for a new IMF standby
program have been hindered by doubts about the
validity of Central Bank data and the ability of the
government to manage the money supply. The new
agreement-involving drawings of $650 million over
18 months-is not expected to be signed before June,
according t Embassy sources. In Feb-
ruary, the Fund was still investigating several trou-
bling issues including the rapid growth in arrearages
and the widening 1984 financing gap.
In mid-January Manila was granted an extension of
its original 90-day moratorium on principal repay-
ments to commercial creditors. The current moratori-
um-due to expire on 15 April-will probably be
extended as well and will buy time for the Philippines
to continue negotiations aimed at rescheduling bank
debt. In addition, Manila's request for a Paris Club
rescheduling of $5.5 billion in medium- and long-term
official obligations will probably remain stalled until
the Fund program comes through
once Manila has a Fund-approved
adjustment program, final discussions on rescheduling
the approximately $6 billion of medium-term debt
and $3.5 billion of short-term debt maturing between
October 1983 and June 1985 should be concluded
within a month. The Philippines has also requested
almost $3.9 billion in new money from banks, govern-
ments, and multilateral agencies to cover 1984 financ-
ing requirements. In our judgment, Manila should
overcome resistance from some smaller banks and get
the $1.65 billion in new bank money it needs through
June 1985. Embassy reporting notes Manila's official
creditors, following the US and Japanese lead, are
expected to cooperate by extending additional trade
credits and export guarantees.
Poland
In early 1981, a year before Brazil or Mexico encoun-
tered debt servicing difficulties, Poland announced it
would be unable to service its external obligations.
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Commercial banks rescheduled Poland's 1981 debt in
April 1982 and 1982 debt in December 1982. An
agreement covering 1983 commercial debt was con-
cluded in November 1983. It rescheduled 95 percent
of medium- and long-term principal repayments over
10 years with five years of grace. In addition, the
banks agreed to relend 65 percent of interest pay-
ments as short-term trade credits. Discussions are
already under wa between banks and Polish officials
for 1984 debt. the terms are
expected to be the same as the 1983 accord but will
probably be extended to cover all remaining principal
repayments not dealt with under the three previous
reschedulings.
Western government creditors and Polish officials
reconvened for the first time since the 1981 reschedul-
ing in late 1983. The Paris Club insisted that arrear-
ages under the 1981 agreement must be eliminated
before 1982 official obligations can be rescheduled.
The Poles, in turn, have requested multiyear debt
relief, resurrected a pre-martial-law request for IMF
membership-Poland is not now a member-and
pressed for new credits. Western governments re-
sponded that committing new credits and debating
IMF membership are not Paris Club functions.
Poland remains close to a complete moratorium; no
payments are being made to government creditors,
and banks are receiving payments on rescheduled debt
only. Warsaw is current, however, on payments under
the 1981, 1982, and 1983 bank rescheduling agree-
ments. Poland has been talking with the Paris Club,
but appears to see little short-term benefit from
ending its de facto moratorium on payments to West-
ern governments. Although many government credi-
tors have been eager to reschedule, in our judgment
these creditors have not yet proposed terms and
conditions that the Poles could reasonably meet or
that would address Poland's limited ability to repay.
Poland's payment capacity-less than $2 billion an-
nually by our calculation-is now almost fully ab-
sorbed by payments to banks, and any substantial
repayments under a Paris Club agreement would
probably be made at the expense of private creditors.
Venezuela
Venezuela's financial problems began during 1982
when domestic concern about the deteriorating cash
flow and the overvalued bolivar sparked large-scale
capital flight. In February 1983 the government
implemented a three-tiered exchange rate system in
an attempt to halt the drain on foreign exchange
reserves. One month later, Venezuela postponed prin-
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a bank advisory committee for the refinancing of
some $16.5 billion of public-sector debt due in 1983
and 1984. The advisory committee has insisted that a
rescheduling would not occur until an IMF stabiliza-
tion program was in place,
but the Venezuelan Government was reluc-
tant to seek an IMF agreement with accompanying
austerity measures as the December 1983 presidential
elections approached. President-elect Jaime Lusinchi
has stated publicly that his number-one priority after
taking office on 2 February 1984 would be to restruc-
ture Venezuela's foreign debt. We believe that, as
long as Venezuela does not request any new money for
1984 and has a workable economic program, an IMF
facility may not be viewed as necessary. To encourage
a consensus on restructuring, we believe Caracas will
need to impose enough economic discipline to appease
foreign bankers and agree to higher spreads than it
has been willing to accept in the past. Economic policy
changes announced at the end of February do not
constitute a workable economic program. It is not
clear that they will be sufficient from the bank's point
of view. To prevent further depletion of its central
bank reserves, Venezuela continued to extend its debt
moratorium through April 1984.
Yugoslavia
Yugoslavia's financial position deteriorated as a result
of a sharp contraction in available credit following the
emergence of Poland's payment problems in 1981.
Already in arrears by late 1982, Yugoslavia's credi-
tors recognized that the country had no prospect of
meeting 1983 obligations. The IMF proposed a rescue
plan that would avoid a formal rescheduling but relied
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critically on creditor willingness to roll over medium-
and long-term credits, maintain short-term trade fi-
nance, and provide enough new money to replenish
reserves. The $6.6 billion package involved a rollover
of $3.2 billion in bank credits, $600 million in new
bank money, $1.3 billion in loans and export credits
from Western governments, $1 billion from the IMF
and International Bank for Reconstruction and Devel-
opment (IBRD), and a $500 million short-term loan
from the BIS. Disputes between bank and Western
government creditors over burden sharing marred the
early stages of discussions, but the agreement was
signed in September 1983.
Discussions to restructure 1984 maturities will be
concluded soon. The Fund proposed that creditors
refinance all 1984 maturities and extend new credits
as they did last year. The plan calls for banks to
refinance $1 billion and for Western governments to
refinance $500 million and extend $250 million in
new trade credits
The IMF encountered bitter resistance to its proposed
package. Some Western bankers felt that funds ad-
vanced in 1983 were used to pay off government
creditors, while some governments failed to make
good on pledged trade credits. The Fund finally
capitulated in January and dropped its initial demand
for $400 million in new bank money. Western govern-
ments again accommodated Belgrade's desire to avoid
a formal Paris Club rescheduling, but terms and
conditions have followed Club guidelines. Both offi-
cial and commercial creditors will now await the
signing of an IMF program before signing their own
agreements.
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Appendix B
Potential 1984
Debt Restructurings
While 30 debtor countries are currently seeking or
have already agreed to restructure in 1984, several
other countries may also seek debt relief this year:
? The Colombian Government says it will not restruc-
ture, but reserves are dropping steadily.
the country will probably restructure its
debt in 1984. We believe Colombia will have to
obtain balance-of-payments support from interna-
tional banks to avoid a debt restructuring.
? Egypt has already explored the possibility of official
debt relief with both the US and French Govern-
ments. Creditor nations are insisting on a multilat-
eral forum for rescheduling discussions linked to an
IMF agreement. However, the Embassy reports that
President Mubarak remains firmly opposed to any
rescheduling of official debt in a formal Paris Club
session.
arrearages on short-term commercial trade finance
have been mounting steadily this year. Because we
see very little chance for an IMF agreement until
the second half of 1984, any rescheduling is likely to
occur in 1985.
? Guyana is hoping to reschedule a large portion of its
debt coming due, according to press reports. Fi-
nance Minister Greenridge recently told Guyana's
parliament that the financial situation was "clearly
unsustainable and can only be resolved with meth-
ods including rescheduling." No IMF arrangement
is in sight.
? Jamaica is likely to obtain a restructuring of $150
million that is owed to commercial banks, according
to press reporting. The government wants the loans
falling due between July 1983 and March 1984 to
be rolled over into a single package maturing in
seven years, with three years of grace.
? Mauritania, according to Embassy reporting, has
been crippled by severe drought and significant
declines in fishing and mining revenues, necessitat-
ing vastly increased food imports and aggravating
an already chronic budget deficit. Mauritania's
President noted in a public statement that external
debt service requirements will be unmanageable in
1984. Mauritania's Western government creditors
will undoubtedly allow arrearages to mount and will
not agree to a rescheduling until a Fund program is
enacted.
? Somalia will face overwhelming debt service pay-
ments during the next two years, according to
Embassy reporting. Both the IMF and World Bank
project that the ratio of debt service to exports could
exceed 50 percent by 1986. Somalia has already
negotiated informal bilateral agreements and pay-
ments moratoriums with several major creditors: the
United Arab Emirates, Iraq, Saudi Arabia, and
Italy. The United States and possibly France are the
only creditors with enough exposure to warrant a
Paris Club session. However, according to Embassy
reporting, a formal Paris Club session may jeopar-
dize some informal arrangements now in place. Still
the Somalis must stay current or obtain relief from
scheduled repayments to the United States or risk a
mandatory cutoff in US assistance.
? Sudan has requested a meeting of official creditors
to reschedule debt maturing in 1984. Sudan's credi-
tors recognize that the country is virtually insolvent
and cannot service its 1984 obligations. Neverthe-
less, the Paris Club session tentatively scheduled for
mid-February was delayed because Khartoum
failed to satisfy three preliminary requirements.
Before a rescheduling can take place this year,
Sudan must pay off an estimated $25 million in
arrearages to Western governments, obtain IMF
executive board approval for a 1984 program, and
sign the outstanding bilateral agreements with cred-
itors necessary to implement last year's reschedul-
ing. While Sudan was in compliance with its Fund
program, its failure to conclude a new program
before the current one expire in late February has
delayed the official rescheduling until the second
quarter.
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