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IMF, World Bank Chiefs Say More Loans to Debtor Nations Possible

October 3, 1986

WASHINGTON (AP) _ The heads of the World Bank and the International Monetary Fund said Friday that a $12 billion rescue package for Mexico should open the way for loans to other debtor nations, but possibly not at such generous terms.

Bank President Barber Conable and IMF Managing Director Jacques de Larosiere both called the Mexican loan agreement a successful first test of the year-old plan by Treasury Secretary James A. Baker III to alleviate Third World debt.

″If we had not had a Mexican package, it would have been a major setback,″ Larosiere told a news conference at the conclusion of the week-long joint annual meeting of the two international organizations.

And Conable told reporters the accord proved that commerical banks, which had previously voiced reluctance toward lending more money in Latin America, where total foreign debt is close to $400 billion, were willing to cooperate.

″If it had not been successful, people would have drawn very negative conclusions about the Baker initiative,″ Conable said.

Mexico is one of 15 nations that Baker’s $29 billion, three-year loan strategy was aimed at helping. The plan calls for $20 billion of the money to come from commercial banks. To receive the loans, countries would have to take steps to make their economy more market-oriented.

Other debtor nations are expected to seek the same kind of terms that Mexico negotiated with commercial banks, the World Bank and the IMF.

But, Conable said, ″this must be done on a country-by-country basis. There is not a common problem that can be dealt with in a common way in Latin America. Mexico was a special case because of their exhaustion of reserves.″

The Mexican loan includes an interest rate that Mexican officials claim is the lowest in their credit history, one that will save them $300 million a year. The plan also contains $1.9 billion in contingency loans if Mexico’s economic performance falters or if the price of oil falls below $9 a barrel.

Conable acknowledged that these features, backed by guarantees from the World Bank, were unusual.

″It is not a standard part of our process. But in the pragmatic world of international banking, we never say never. They were needed to complete the (Mexican) package,″ Conable said.

He said negotiations on another package, a $450 million loan for Nigeria, were progressing. ″It’s not the dimensions of the Mexican package and I think it will be easier to achieve,″ he said.

De Larosiere, who is retiring this year after eight years as director of the 151-nation IMF, also said that concessions won by Mexico from its creditors should not be viewed as a precedent by other nations seeking similar aid.

″You never forge a precedent. You try do do the right thing at the right time. We must keep in mind the case-by-case approach,″ he said.

While the Baker plan for new loans for debtor nations was roundly praised at this week’s annual IMF-World Bank meeting, U.S. efforts to put in place a new mechanism to stabilize exchange rates drew less support.

And in his farewell speech to the IMF, de Larosiere cautioned that industrial nations should not put too much weight on exchange rate adjustments to ease trade imbalances.

Over-reliance on exchange rate changes ″could encourage protectionist pressures and possibly result in recession,″ he said.

The United States had sought broader support for a new process - endorsed at last May’s seven-nation Tokyo economic summit - that would use economic indicators to help bring about exchange rate adjustments and to help coordinate economic policy among trading partners.

But de Larosiere said: ″A more systematic use of economic indicators can pay a useful role, although as many (finance ministers) emphasized, indicators should not be used as a mechanistic trigger.″

Conable, meanwhile, said the World Bank is expanding its own lending program. It intends to lend $15 billion in the bank’s current fiscal year, which runs through next June 30, up from $13.2 billion last year.

He said an increase in funds for the World Bank will be sought sometime after next year to keep pace with the higher lending levels.

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