Slight Relief on Debt
WITH the completion in principle of a debt-relief package between Mexico and its foreign-bank creditors, the limits of negotiated debt relief for the developing world stand out starkly. Although the key participants in the talks - Treasury Secretary Brady, Mexican President Salinas, and the leading bankers - are putting the best face on the deal, its paucity of real relief for Mexico is disappointing. Especially when the results are held up against the high hopes engendered by the so-called Brady Plan and its original emphasis on reducing the developing world's overall debt load.
That's not to ignore the bright side. Once the details are hammered out, Mexico will realize about $3 billion a year in debt-service relief. The face amount of its $54 billion in foreign-bank debt will decline by a modest amount, depending on the options selected by various banks. And scores of international bankers actually reached a meeting of minds, overcoming the ``free-rider'' problem and other high hurdles.
Nonetheless, the silver lining is faint. Mexico itself is far from being out of the woods. More worrisome, this slight relief package, worked out over four months of hard-edged negotiations with the best credit risk among Latin American debtors, offers little cheer for the coming negotiations with governments that have done far less to get their economic houses in order. In its response to pressure from the US and the international lending agencies to adopt austerity measures and to unshackle its economy from government constraints, Mexico has been a model debtor. Such other major Latin debtors as Brazil and Peru remain in economic disarray, making it harder for creditors to come to terms with them.
The social costs of third-world poverty - to which heavy debt burdens unquestionably contribute - are grave. Yet there are limits on the extent to which international banks, with responsibilities to their shareholders and the world financial order, can assume those burdens. The bankers, with the help of Western governments and the international agencies, should continue to be as accommodating as possible. But the debt crisis is primarily attributable to borrower policies that mismanaged loans, slighted investment, subsidized consumption, ignored corruption, and encouraged capital flight. Until these underlying problems are alleviated, the crisis will drag on.
