LA PAZ, BOLIVIA, JULY 16 -- Bolivia and its private bank creditors have signed an agreement under which the country will be allowed to buy back as much as $1 billion of its debt -- the total amount it owes commercial banks -- at a sharp discount.

Under the agreement, Bolivia will purchase the debt for 15 cents on the dollar with money donated by foreign governments to a special fund that the International Monetary Fund will administer.

Banks insisted on this twist because they feared the agreement would encourage other Latin American debtors to demand similar discounts from banks, Bolivian Finance Minister Juan Cariaga said in an interview.

He said that banks view Bolivia as a special case, both because the country has won strong backing from foreign government and lending institutions for its strict monetarist program and because its debt is worth only a fraction of its original value.

The agreement, signed without fanfare a week ago in New York, calls for Bolivia to buy back as much as the $690 million it owes private banks in principal debt and the $200 to $300 million in interest.

Bolivia, which has suffered six straight years of economic decline, stopped making debt payments in 1983, and many banks had alreaady written off the debt as unpayable. The country's overall foreign debt is $3.3 billion.

Under the agreement, Bolivia will make a single offer to all of its 139 creditors to purchase its debt at a steeply discounted rate. Banks will then have 30 days to individually accept or decline the offers.

The country can make additional offers if it is unsatisfied with the number of banks that accept the original proposal.

But Cariaga said Bolivia, South America's poorest country, will probably only make one take-it-or-leave-it offer.

Bolivia will renegotiate with banks any debt it does not purchase.

Because of Bolivia's economic straits, the country's debt is currently worth only 15 percent of its original value, the lowest rate of any country in Latin America.

So for every dollar of debt that Bolivia purchases, it would only pay banks about 15 cents. The country could presumably wipe out the entire private bank debt for less than $150 million, assuming it receives enough funds from foreign governments.

The innovative accord provides something for both the banks and the Bolivian government.

"Bolivia wins because it lowers its debt at a discount," said a foreign banker. "Banks win because they receive cash for debt they've already written off."

Cariaga said several countries have already offered to contribute money to the special debt fund, but he declined to identify them or say how much they have offered.

With U.S. banks holding the largest share of Bolivian debt, the U.S. government is potentially the largest donor. U.S. embassy spokesman Mark Jacobs said: "We're aware of the plan but have no further comment."

While banks will resist granting similar discounts to other Latin American debtors, those countries are expected to analyze the Bolivian agreement closely.

"We expect that many other countries are going to view our plan as being very attractive," Cariaga said. "But I think it's quite improbable that banks will agree to similar deals."

There also have been reports here that the Bolivian government is discussing a proposal with governments that would help retire Bolivian private bank debt by having foreign governments donate money to a special antinarcotics fund.

Bolivia is soliciting money to fund an antidrug project on which it foresees spending $300 million over the next three years. Bolivia is the world's second-biggest supplier of cocaine.

Under the proposal, which has been put forward by Colin Moyhinan, a British member of parliament, Bolivia would buy back private bank debt using money contributed by foreign governments to the antidrug fund.

For example, if Britain donated $10 million to the antinarcotics fund, this would free up $10 million the country had earmarked for the drug fight. Bolivia would then use the $10 million to purchase its debt from private banks at the 15 percent discount rate.

The United States is expected to contribute about half the money for the antidrug program. But Jacobs said he was unaware of plans for the United States to use the money it donates to the antidrug effort to help Bolivia reduce its private bank debt.

Moyhinan has said that if governments are already planning to donate funds for the three-year antinarcotics program, they might as well retire some of Bolivia's commercial bank debt at the same time and at no extra cost.

"The plan would be a double bonus for Bolivia because the country would both have some of its debt written off and also get money for the antinarcotics effort," said a Western diplomat.