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number of countries not regularly highlighted in this report: there are growing
concerns regarding Jordan and Oman, and domestic policies are uncomfortably
expansionary in Greece and Turkey.
The position in pre-election India and
post-election Pakistan may require closer monitoring.
18 In discussions with the Paris Club in October, representatives of the major
banks indicated that the limits of the "menu approach" were being reached and that
it was becoming increasingly difficult to maintain cohesion within their group.
There are already signs of debtor disenchantment with some of the menu options:
debt-equity conversion programmes are in suspense in Mexico and may be halted in
Brazil (see para 22 below), while resistance to on-lending proposals (increasingly
seen as important for bank participation in reschedulings) has been met in Argentina.
19
Creditor governments face a number of challenges. Mexico, with a good recent
adjustment record but now in difficulties, will be looking to all creditors for
support. While the banks will be seeking credit enhancement (eg IBRD guarantees)
those with the largest exposures cannot afford to walk away, at a time of pressure
to maximise earnings and build up capital ratios. As in the case of Brazil, in the
end they will probably stump up a reasonable share of total new money
requirements. Similar arguments apply, if with less force, to Argentina and
Venezuela. While uncertain, US official attitudes will, as usual, be crucial.
the face of pressing budgetary problems with the thrifts (a solution could cost US
taxpayers $50 bn or more), and possible difficulties ahead with the banks' heavy
LBO-related lending, the new Administration can be expected to offer stiff
resistance to any suggestion of expenditure on 1dc debt relief. Nevertheless, the response to Mexico's and Argentina's difficulties is indicative of the importance
for the debt strategy of US foreign policy objectives.
In
20 In the case of the non-systemic middle income debtors (probably all but the four
largest Latin American countries), the banks' position is, by definition,
stronger. Recent experience suggests that new money will be conceded much more
reluctantly, if at all; if need be the banks can afford to sit tight. Official
creditors will be under pressure to take on an increasing share of the risk.
21
As the incentives for banks to contribute new financing have diminished, the
ability of the IMF to co-ordinate debt negotiations in a way which achieves a
With satisfactory balance of the interests of all parties has been undermined. fading expectations of support from private creditors, the Fund's financing gap
calculations load an increasing burden on the debtor and official creditors.
In
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