Tailoring Russian Aid the US, IMF, and Other Lenders Are Working to Apply Lessons Learned from Latin America's Debt Crisis to Russia

By Enrique R. Carrasco. Enrique R. Carrasco is an associate professor formerly an attorney American debtor countries. | The Christian Science Monitor, May 3, 1993 | Go to article overview

Tailoring Russian Aid the US, IMF, and Other Lenders Are Working to Apply Lessons Learned from Latin America's Debt Crisis to Russia


Enrique R. Carrasco. Enrique R. Carrasco is an associate professor formerly an attorney American debtor countries., The Christian Science Monitor


A DECADE after the eruption of the "third-world debt crisis," politicians, academics, and others are discussing foreign debt once again with a sense of urgency. This time the foreign debt at issue is not that of Latin American countries. It is Russia's external debt of about $80 billion.

It appears that President Clinton and supporters such as Sen. Bill Bradley (D) of New Jersey have taken Latin America's "lost decade" into account in formulating United States policy regarding Russia's debt crisis.

Mr. Clinton has stressed the importance of protecting the welfare of the Russian people as they face economic structural adjustment. He has also focused on a theme all but ignored in Latin America during the past decade: the "people to people" approach.

Russia's debt crisis originated with "perestroika loans" that official Western creditors and foreign commercial banks made to Soviet enterprises during a period of increased decentralization. Between 1985 and 1990, the former Soviet Union's external debt more than doubled. Official creditors, to whom Russia owes approximately $40 billion, have recently agreed to restructure $15 billion in external debt due this year.

Deputy Prime Minister Alexander Shokhin, Russia's chief debt negotiator, is now in the midst of debt restructuring negotiations with 600 or so commercial bank creditors (the "London Club"), to whom Russia owes approximately $20 billion.

Latin Americans know all too well the challenges the Russian people face. During the 1970s many of them borrowed heavily from foreign commercial banks that were eager to recycle "petrodollars" profitably. During the global recession of the early 1980s these countries faced a severe liquidity crisis. Starting in 1982, one Latin American debtor country after another declared that it could no longer continue to service its external debt. Instead of repudiating their debt, most Latin American countries eventually adopted a cooperative approach with their foreign creditors. Debtor countries restructured bilateral, government-to-government debt through the Paris Club. They also engaged in case-by-case debt restructuring negotiations with their foreign commercial bank creditors.

In return for new loans, reduced interest rates, and longer repayment periods, debtor countries agreed to structural adjustment programs designed by the International Monetary Fund (IMF) and the World Bank.

These programs emphasize "free market" reforms such as free trade with other nations, privatization of state-owned enterprises, and deregulation of the domestic markets. Most Latin American countries are thus abandoning the inward-looking, statist model of development known as "import substitution."

This cooperative approach has been relatively successful. The major lending banks have not collapsed. Latin American debtor countries appear to have their external debt under control and are embracing economic liberalism.

THE Brady Initiative, introduced in the late 1980s by former Treasury Secretary Nicholas Brady, has provided further debt relief for several major debtor countries including, most recently, Brazil. …

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