> He suggested without coming right out and saying so
>that debt reschedulings are the answer in that they put
>some of the burden on the lenders and the surplus
>countries.
WALL STREET JOURNAL - November 11, 1998
U.S. May Unveil Asian-Debt Plan Soon; Officials Push for Proposal by Next Week
By BOB DAVIS Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Clinton administration is hoping to complete a plan to restructure the banking and corporate debt of troubled Asian nations so that President Clinton can present it to a meeting of Asian leaders next week.
Details of the proposal, which was first reported last month, still haven't been worked out. But the plan could allow ailing Asian countries to issue government bonds backed by Japan and other nations as well as multilateral lenders such as the World Bank. The proposal comes on top of a U.S.-led effort to use the meeting of the Asia Pacific Economic Cooperation forum in Kuala Lumpur, Malaysia, to reduce regional tariffs on nine major industries. The success of both proposals depends, in large measure, on convincing Japan to sign on. The U.S. wants Tokyo to finance much of the debt restructuring and to drop its objections to the tariff cuts.
"The initiatives are complementary pieces of how Asia recovers," said U.S. Trade Representative Charlene Barshefsky. "They will act synergistically to enable Asian economies to emerge from their problems."
Intricate Negotiations The Treasury Department has been working for months on a restructuring plan to ease the heavy private-sector debt that it believes is undermining economic activity throughout Asia. But devising a plan has required intricate negotiations between the U.S., which wants to lead policy making, and the World Bank and Japan, which the U.S. wants to pay the bills. It isn't clear that the sides will be able to strike an agreement in time for the APEC meeting. If they can't, Mr. Clinton may merely encourage the leaders to work closely to accelerate debt workouts.
"The U.S. has the ideas, but the Japanese have the money," said an official involved in the negotiations. "The Japanese are a little upset that their money is being used by others" to form the basis of a proposal.
For his part, Mr. Clinton told a group of big exporters Tuesday that the U.S. would work at the APEC meeting on "speeding the economic recovery in Asia ... [and] helping companies there to restructure their debt so they can emerge from the crushing burdens they face." APEC includes Russia and nations in Asia, Latin America and North America that rim the Pacific Ocean.
Pool of Money Japanese Finance Minister Kiichi Miyazawa said in late September that Tokyo would offer a fresh line of $30 billion in loan guarantees, trade credits and debt purchases for nations across Asia. That is the pool of money that the U.S. wants to tap for its restructuring plan.
The U.S. Treasury Department wouldn't provide details of the restructuring proposals, but one official there said "the president has made it clear that restructuring the financial system and corporate sector is critical to the region's recovery. We've been working for a while on a variety of ideas to follow up."
Under one idea being considered, troubled Asian nations would issue government bonds whose principal would be at least partly guaranteed by Japan and other nations, and whose interest would be guaranteed by the World Bank and other multilateral institutions. The World Bank may require that nations adopt strengthened bankruptcy laws to qualify for the guarantees, according to an official taking part in the negotiations.
The proceeds of the bonds would be used to recapitalize banks which would then oversee and encourage the restructuring of corporate debt. In some instances, banks would accept equity, or debt convertible into equity, in borrowers' firms in exchange for canceling a portion of the debts. But there is concern that in nations such as South Korea, where corporate borrowers are far more powerful than the nation's banks, such a plan wouldn't work. In that situation, a government restructuring agency would oversee corporate workout plans.
Cutting Tariffs On the trade front, the U.S. will push other APEC nations to agree to a plan to speed APEC members to cut tariffs in nine sectors: environmental goods and services; fish; wood and paper; medical equipment; energy products and services; telecommunications; toys; jewelry; and chemicals. The U.S. estimates that these sectors account for $1.5 trillion in world trade.
Ms. Barshefsky said the U.S. would take an APEC agreement and try to enlist nations in Europe and elsewhere to agree to the tariff cuts as well. The agreement wouldn't take effect unless the world's biggest trading nations agree to it. She accused Japan of trying to protect its local industries by lobbying against tariff cuts in the wood, paper and fishing industries. Without the full package of tariff reductions, she said, the deal could fall apart at APEC.
"Japan is going around the region promising overseas development assistance to countries that don't participate," she said. "It's completely outrageous."