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US opposes new world agency to write off debt.

President George Bush's administration, which has urged US banks to forgive part of the Third World's debt, opposes creation of an international agency that could mandate writing off some of the loans, a US official said. Assistant Treasury Secretary David Mulford, who helped design the debtforgiveness plan, told a hearing that such an agency would reduce the value of the loans in secondary markets.

Congress last year directed former President Ronald Reagan to explore creating an international debt management authority to renegotiate loans on more favourable terms to developing nations. But many creditors who have tried to sell off debts to other lenders have been able to get only 40 per cent of the loans' face value. Third World debt currently stands at $ 1.3 trillion with Latin America owing $ 442 billion. Details of the debt forgiveness plan are being flushed out as negotiations begin with some of the major Third World debtors, Western industrialised nations, banks and international institutions.

Treasury Secretary Nicholas Brady unveiled the plan, conceding that the socalled 1985 Baker Plan, named for his predecessor James Baker, had failed to solve the Third World debt crisis. Instead of asking creditors to forgive loans, the Baker Plan has stressed fresh loans to impoverished Third World Countries willing to undertake new enterprises and austerity programmes. But debtor nations argued that while the World Bank issued new loans it was only enough to pay off interest payments on mounting foreign debts. Commercial banks failed to infuse enough funds for them to start new enterprises.

Major US banks have strongly resisted administration efforts to pressure them into writing off a portion of their Third World debts. Mandatory debt forgiveness would "seriously retard" the ability of Third World debtors to obtain new loans, William Rhodes, head of debt restructuring at Citicorp, told a congressional committee earlier this year. US banks now hold $ 97.7 billion of the Third World debt. The six largest borrowers are Argentina, Brazil, Chile, Mexico, Venezuela and the Philippines.

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Title Annotation:Global Outlook
Publication:Economic Review
Date:Feb 1, 1990
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