Another Test For Brady Debt Plan

DEBT relief doesn't look as good here as it used to. When United States Treasury Secretary Nicholas Brady launched his debt-reduction scheme in March, Costa Rican officials were euphoric. With more than $4 billion owed foreign creditors, they relished the idea of reducing one of the highest per capita debts in the third world (higher even than the per capita debts of the other members of the Brady bunch - Mexico, the Philippines, and Venezuela).

But with negotiations due to begin Monday in New York, a new-found pessimism has struck Costa Rican debt managers. The reason: last month's deal between Mexico and its bank creditors. Billed as a ``blueprint'' for the Brady plan, the design of the Mexican agreement is simply unappealing to many Costa Ricans. ``It is not in Costa Rica's interest to accept a deal like the Mexican one,'' says Ennio Rodriguez, a former minister for external debt and finance. ``Mexico's capacity to grow is really hindered.''

Mexico obtained a nominal 35 percent discount on $47 billion of its foreign-bank debt. Costa Rica is seeking a much deeper reduction on $1.5 billion owed to 200 commercial institutions - a relatively small amount for big banks, but a huge amount for a small country.

The concern is that the banks have established the Mexican debt-reduction discount as a rough floor for debt reduction for other nations. US commercial bankers, it is said here, resented the pressures brought on them by Mr. Brady and other Washington officials to make concessions in the Mexican deal.

An inadequate 35 percent discount for Costa Rica would cause ``grave damage,'' says Eduardo Lizano, governor of the Central Bank of Costa Rica.

Costa Rica hopes the banks will take a case-by-case attitude and recognize the country's unique attributes. Costa Rican debt, it is noted, has been selling in the secondary market for about 15 cents on the US dollar, much less than the 40 to 50 cents for Mexican debt.

Compared with other debtors, Costa Rica's economy is in better shape. US aid and World Bank loans have cushioned Costa Rica from Central America's economic crisis - a consequence, in part, of Washington's policy of bolstering governments that border Nicaragua.

Economic adjustments required by the Brady plan are also in place. While they are hurting small farmers and some workers, there is not the degree of discontent here that has produced social explosions in Venezuela and Argentina. And, unlike Mexico and the Philippines, Costa Rica is not looking for new money from the banks. It would like to rid itself of debts, at a satisfactory discount, and not run up new obligations to banks.

Rather, it hopes for concessional loans from international development institutions and aid agencies.

A successful debt restructuring will not in itself ensure economic recovery. If the US economy falls into a recession, Costa Rica's plans for export-led growth will be impaired. Or if US interest rates should suddenly spurt higher, this too could wipe out any debt reduction gains.

Cameron Duncan, a professor of international economics who is studying Costa Rica's debt management, sees a fundamental flaw in the Brady plan. ``The financial resources being mobilized in the World Bank and IMF [International Monetary Fund] will pay off bank creditors but not help Latin Americans in the long run. The Brady plan will not help Costa Rica, for example, put money into the kind of investments it needs to have its economy grow again.'' He notes that Costa Rica needs sufficient growth to meet the needs of a population expected to double in 40 years.

The international financial institutions are pressing Costa Rica to reach a quick settlement with the banks.

The IMF and the World Bank signed agreements with the government despite the lack of the usually required arrangement with private creditors, but with the expectation that one will be in place soon.

But Mr. Rodriguez, the country's former debt manager, suggests a more cautious pace. ``If Costa Rica has to make higher payments than now, it would be in a worse situation. It would be better to stay at the negotiating table until a deal is struck that makes sense.''

Third-world Debt: Leading Debtor Nations Brazil $120.1 Mexico 107.4 Argentina 59.6 Venezuela 35.0 Nigeria 30.5 Philippines 30.2 Yugoslavia 22.1 Morocco 22.0 Chile 20.8 Peru 19.0 Colombia 17.2 Ivory Coast 14.2 Ecuador 11.0 Bolivia 5.7 Costa Rica 4.8 Jamaica 4.5 Uruguay 4.5 SOURCE: WORLD BANK