Sen. Bill Bradley (D-N.J.) yesterday stressed that the debt relief he has proposed for hard-pressed Third World borrowers "should vary from year to year, and from country to country, depending on results."
In a speech to the National Press Club, Bradley reaffirmed his belief that Treasury Secretary James A. Baker III's debt initiative "could be improved" by incorporating a debt-relief element, despite what he acknowledged was an encouraging application of the Baker plan in the debt package for Mexico, which was announced this week.
"As I read the proposal for Mexico , there is no reason why all of the new $6 billion to $7 billion of new commercial debt and any restructured debt would have interest rates any higher than LIBOR," Bradley said. LIBOR is the acronym for the London Interbank Offered Rate, the base interest rate on which charges to Third World borrowers are calculated.
Bradley pointed out, as an example, that Brazil is charged about 2.5 percentage points over LIBOR on most of its $100 billion foreign debt. If a pattern is set by the new Mexican loan package of cutting interest charges down to the LIBOR level, "it would be extremely significant," he said.
That, he said, would be close to his original proposal, made at a Zurich conference three weeks ago, calling for 3 percentage points of interest-rate relief for three years, plus an annual 3 percent writedown and foregiveness of capital in each of those years. There would be $9 billion in extra World Bank loans over the same period, but no new commercial loans would be required from the banks.
Baker's initiative contemplated no debt relief; the same amount of multilateral-development loan increases; and $20 billion in fresh capital over the three-year period. Both Baker and Bradley established as a condition that the borrowing countries revise their economic structure to liberalize trade and encourage investment.
Commercial banks have not announced the terms on which they expect to participate in the new agreement negotiated by the government of Mexico and the International Monetary Fund.
Some critics have contended that many of the 15 countries targeted by both the Baker and Bradley plans did not require such sweeping cuts in their debt-servicing costs.
Yesterday, Bradley stressed that the figures he mentioned in Zurich were only a target.
"These relief packages should be carefully tailored to the needs and commitments of each country," he said. "The actual value and mix of each yearly trade/relief package should depend on the uses that each debtor has made of a previous year's package," he said.
He praised "the reasonableness" of the size of the Mexican package (he estimated it at $12 billion), and of its linkage of future loan commitments to the price of oil.
"I hope it signals a new mood and a new spirit that we're all in this together, and that helping Mexico restore growth is not a problem but an opportunity for America," he said.
Bradley acknowledged in response to a question that his debt-relief plan would require American banks to "take a hit in terms of less earnings."
But he said that this impact on banks would be reasonable. If every Latin American country participated in his plan and got the maximum amount of relief ($42 billion from the banks over three years), "the most it would mean that banks would lose earnings equivalent to one to four months."
In the process, he said, "it would make their whole structure much more stable," while stimulating economic growth in Latin America and the United States.
In answer to another question, Bradley said he was not surprised that Federal Reserve Chairman Paul A. Volcker, in congressional testimony Wednesday, had dismissed his debt-relief proposal as counterproductive.
That was typical, he noted, of reaction from other central bankers.
"I kind of expected that Paul Volcker would say that," Bradley said, "but I think eventually we'll head in the direction of debt relief."