CONFIDENTIAL
2
3
The
Elsewhere there are continuing efforts by banks and other creditors to complete
agr ents with other major debtors, in order better to concentrate on Brazil when
the negotiations start and to reduce the risk of contagion if matters go wrong. With Mexico's financing package completed, attention has focused on Argentina.
banks reached a critical mass of commitments for the Argentina new money agreement on July 3 (with the overwhelming proportion achieved by June 17, the date of expiry
of the 3/8% early commitment fee). The IMF for its part approved disbursement of the CFF on July 10; a revised (and now rather weak) SBA was approved by the Board
on July 23.
4 The agreements for Argentina, as well as those earlier in the year for Chile and
Venezuela, have been made, perhaps surprisingly, against a background of some deterioration in economic performance. The Argentine trade surplus in Q1 was 60%
lower than in the corresponding period of last year, with exports down 5% and
imports up over 30%: the H1 current account deficit was $1.8 bn (cf a target of
$0.8 bn). Prices have risen by over 110% over the past year (cf a government
target of 40% for the year as a whole), and the fiscal deficit in Q1 exceeded the
IMF programme target by 60%. In Chile imports in January-April 1987 were also 30%
higher than a year earlier (the country is, however, expected to remain within its earlier projected $1 bn current account deficit because of the benefits in the banks' package); inflation rose to 20% in the year to May (although it fell back in June), and the Fund have revised upwards their earlier 13% inflation projection for
the year as a whole to 16%. In Venezuela inflation is expected to be at least 30%
this year, compared with 10% in 1986.
5
Meanwhile, attempts continue to devise new ways to deal with the debt. The
'exit bonds' scheme in the Argentina package has so far not been taken up by any banks, since it was not obligatory and involved accepting a lower rate of return than could be obtained by doing nothing; but it is being revised and is bound to
be tried again for other countries. Any Brazilian financing package, for instance, is likely to have a substantial number of such alternatives in the "menu" banks will
be offered. Debt equity conversions continue to be fashionable. Various schemes
continue to be devised for African debt, usually along the lines of a capital market issue by the country either guaranteed by some creditors or of sufficient magnitude
to enable part of the proceeds to be put into risk-free zero coupon assets, thus
leaving only the future interest stream at risk. Recent schemes along these lines
include a Dean Witter scheme for Angola and an African Development Bank Scheme for
Zaire; none of these schemes has yet found widespread favour.