A senior official of Citibank of New York City said yesterday that notice has been served on Peru and other debt-ridden developing countries that the private banking community will not "send good money after bad" to help them out of their financial predicament.
The bank's senior vice president, Foreign Relations Subcommittee on Foreign Economic Policy that new loans to Peru and Zaire, both of which are in dire monetary straits, will be withheld pending proof of their "credit worhtiness." He said that commercial banks also are reluctant to postpone interest and principal payments on those countries' old loans as government and institutional lenders have been doint.
Friedman did not exclude the possibility of debt rescheduling for the two countries but he said this would be against their interests because lenders might shun them later when they tried to raise capital in private markets for development purposes.
Friedman described Zaire as "broke as broke as any country in the world. No new loans have been extended to the African country since 1975. Friedman said, however, that Citibank was now ready to take the lead in raising $250 million in private banking credits. Zaire could purchase a "shopping list" of urgently needed items to get its economy functioning again.
Testimony on Friday before the same subcommittee criticized that loan. John L. Moore, president of the U.S. Export-Import Bank said the credit apparently was being given in return for repayments of old loans to the private lenders.
Moore said Zaire had continued to pay interest on its loans to the private banks but, in August, had not paid $10.3 million due in interest and fees on an old loan of the Export-Import Bank, which is a U.S. Government agency.
The suggestion was that the private banks have been maneuvering to get paid ahead of government and institutional lenders, which are supported by the taxpayers of this and other nations.
Public lenders met in 1976 and agreed to stretch out Zaire's repayments on official and officially guaranteed loans, to help it out. Zaire's commercial creditors decided against rescheduling however.
Citibank aiders said yesterday that the $250 million loan to Zaire would be at 2 1/2 per cent above the prime lending rate - the rate at which banks begin to make money.
Friedman said that the possibility of a loan was temporarily shelved in August when Governor Sambwa of the central bank was deposed.
Since then, he said, representatives of Citibank and some other private lenders have held extensive talks with his successor, former finance minister Bofossa, who satisfied them that he woudl carry on the economic and fiscal policies deemed necessary to restore the economy.
Banking sources said yesterday that an estimated $40 million worth of municipal transport is currently out of service because of the lack of $3 million worth of spare parts. Some river barges needed to transport the rubber, coffee and copper vital to the economy apparently have been diverted into illegal smuggling trade upstream, the sources said.
The country's financial situation is also hurt by the fact that some portion of the foreign exchange earnings from mineral and agricultural exports apparently finds its way illegally into Swiss banks, it was learned.
Peru, the other country discussed at length yesterday, was subjected to tough demands last year by both private bankers and representatives of the International Monetary Fund. In several cases the government was told that harsh economic austerity measures would have to be undertaken to qualify the country as credit worthy.
Friedman told the subcommittee yesterday that the banks had set no domestic conditions for the country when the government approached it for loans in 1976. However, he said that stringent fiscal and economic conditions were established prior to the issuance of $400 million in private credits.
In July, the cabinet turned down a new credit arrangement with the IMF, bringing the immediate resignation of the country's finance minister and the governor of the central bank. Friedman said Citibank told the Peruvians this June that no more money would be loaned until Peru provided a satisfactory "economic outline." Peru's negotiations are now underway with the IMF and Friedman indicated that Citibank might reconsider giving private loans it Peru comes to terms with the Imf.