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Notwithstanding this reality, Citicorp chairman, John S. Reed (CFR)/ whose bank is one of Mexico's largest lenders, said they were prepared to lend even more now. Why? Did it have anything to do with the fact that the Federal Reserve and the IMF would guarantee payments? Not so. 'Because we believe the Mexican economy is doing well,' he said.1
At the end of 1994, the game was still going, and the play was the same. On December 21, the Mexican government announced that it could no longer pay the fixed exchange rate between the peso and the dollar and that the peso would now have to float in the free market to find its true value. The next day it plummeted 39
per cent, and the Mexican stock market tumbled. Once again, Mexico could not pay the interest on its loans. On January 11, President Clinton (CFR) urged Congress to approve U.S. guarantees for new loans up to $40 billion. Secretary of the Treasury Robert Rubin (CFR) explained: 'It is the judgment of all, including Chairman Alan Greenspan [CFR], that the probability of the debts being paid [by Mexico] is exceedingly high.' But, while Congress debated the issue, the loan clock was ticking. Payment of $17 billion in Mexican bonds was due within 60 days, and $4 billion of that was due on the first of February!
This matter could not wait. On January 31, acting inde-
pendently of Congress, President Clinton announced a bailout package of over $50 billion in loan guarantees to Mexico; $20 billion from the U.S. Exchange Stabilization Fund, $17.8 billion from the IMF, $10 billion from the Bank of International Settlements, and $3 billion from commercial banks.
BRAZIL
Brazil became a major player in 1982 when it announced that it too was unable to make payments on its debt. In response, the U.S.
Treasury made a direct loan of $1.23 billion to keep those checks going to the banks while negotiations were under way for a more Permanent solution through the IMF. Twenty days later, it gave another $1.5 billion; the Bank of International Settlements advanced $1.2 billion. The following month, the IMF provided $5.5 billion; Western banks extended $10 billion in trade credits; old loans were rescheduled; and $4.4 billion in new loans were made by a Morgan L ibid., p. 35.
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Bank syndication. The 'temporary' loans from the U.S. Treasury were extended with no repayment date established. Ron Chernow comments:
The plan set a fateful precedent of 'curing' the debt crisis by heaping on more debt. In this charade, bankers would lend more to Brazil with one hand, then take it back with the other. This preserved the fictitious book value of loans on bank balance sheets. Approaching the rescue as a grand new syndication, the bankers piled on high interest rates and rescheduling fees.1
By 1983, Third-World governments owed $300 billion to banks and $400 billion to the industrialized governments. Twenty-five nations were already behind in their payments. Brazil was in default a second time and asked for rescheduling, as did Rumania, Cuba, and Zambia. The IMF stepped in and made additional
billions of dollars available to the delinquent countries. The Department of Agriculture, through its Commodity Credit Corporation, paid $431 million to American banks to cover payments on loans from Brazil, Morocco, Peru, and Rumania. At the conclusion of these agreements, the April 20, 1983,
Not quite. By 1987, Brazil was again in default on its monstrous $121 billion debt, this time for one and a-half years. In spite of the torrent of money that had passed through its hands, it was now so broke, it couldn't even buy gasoline for its police cars. In 1989, as a new round of bailout was being organized. President Bush(CFR) announced that the only real solution to the Third-World debt problem was debt forgiveness.
Perhaps, through repetition, we are running this history into the ground, but here are just a few more examples before moving along.
ARGENTINA
By 1982, Argentina was unable to make a $2.3 billion payment that was due in July and August. The banks extended their loans while the IMF prepared a new infusion in the amount of $2.15
billion. This restored the interest payments and gave the Argentinian politicians a little extra spending money. Seven 1. Chernow, p. 644.
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months later, Argentina announced it could not make any more payments until the fall of 1983. The banks immediately began negotiations for rollovers, guarantees, and new IMF loans.
Argentina then signed an agreement with 350 creditor banks to stretch out payments on nearly a fourth of its $13.4 billion debt, and the banks agreed to lend an extra $4.2 billion to cover interest payments and political incentives. The IMF gave $1.7 billion. The United States government gave an additional $500 million directly.
Argentina then paid $850 million in overdue interest charges to the banks.
By 1988, Argentina had again stopped payment on its loans and was falling hopelessly behind as bankers and politicians went into a huddle to call the next bailout play. Somehow, the payments had to be passed on one more time to the taxpayers—which they were in the form of new loans, rollovers, and guarantees. As summarized by Larry A. Sjaastad at the University of Chicago:
There isn't a U.S. bank that would not sell its entire Latin American portfolio for 40 cents on the dollar were it not for the possibility that skillful political lobbying might turn up a sucker willing to pay 50 or 60 or even 90 cents on the dollar. And that sucker
