CONFIDENTIAL
3
6 Syndicated loans continue to be the prime borrowing instrument for developing
Cou ies. Since the beginning of June, 80% of their borrowings ($1.1 bn) have
taken this form. Chinese borrowers accounted for three quarters of the total with
two sizeable loans ($200 mn and $340 mn) and several smaller loans. Only two
borrowings were announced in this period for East Bloc countries, both syndicated
loans. One raised $34 mn for Vneshtorgbank of the USSR; the other, for the first
joint venture in Poland (Lim Joint Venture Co, involving the Polish airline as the
major partner, with Marriott hotels and the largest Austrian construction company),
the first euroloan to a Polish borrower since rescheduling, raised the equivalent of $93.6 mn in Austrian schillings. The cost of this new borrowing has not been
disclosed, but is believed to be below that of the rescheduled loans. Repayments
are to come from hard currency earnings from the project the joint venture was set
up to undertake. Market access, however, continues generally to be very difficult
for convalescent debtors: Venezuela's soundings about a return to the markets
appear to have been rebuffed. On the other hand, Colombia has obtained preliminary
agreement from the banks for a syndicated loan of around $1 bn.
7 At the other end of the debt spectrum, Peru and Zambia remain in confrontation
with creditors. President Garcia of Peru has criticised his own administration for
excessive laxity in applying the 10% debt service limit last year, and has promised
increased rigour in its enforcement from now on. But Cote d'Ivoire, which had earlier declared a payments moratorium in the face of sharply falling commodity
prices, has now reportedly reached agreement on draft letter of intent for a new
SBA, following a visit from the Fund MD. In Ecuador (which has suspended all
payments to the banks) negotiations with the banks are expected to begin after the
completion of the rebuilding of the oil pipeline around the end of August.
8 The general world economic environment continues to be mixed. In the major
seven economies in aggregate GNP in Q1 was 2.7% higher than a year earlier, and
early data for Q2 suggest continued modest growth. Although forecasts for growth for the year as a whole and for 1988 remain at around 2 1/2% to 2 3/4% per annum,
discussions at recent international meetings (such as the OECD WP3) have been
slightly less pessimistic than earlier in the year about prospects for the world
economy. Meanwhile, interest rates are little changed over the last six weeks,
with six-month eurodollar rates remaining slightly above 7%. The US dollar has
been relatively stable in effective terms since the Louvre agreement, and is around
4 1/2% below its level of the end of last year.
9 The OPEC ministerial meeting in June brought agreement on quotas to maintain an
oil price of $18 pb. This accord seems so far to be holding, with some oil prices
rising above $20 pb, their highest levels in dollars since the end of 1985 (in SDRS
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