The Gathering Storm

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Debtor countries meet to set strategy for their confrontation with bankers

"We hear the far-off thunder of violent drums. We feel the winds of storms," warned Colombian President Belisario Betancur last week in a chilling speech to government ministers of his Latin American neighbors. His rousing rhetoric referred not to war or natural disaster but to something equally momentous: Latin America's $350 billion debt burden. Since the beginning of the year, the pressure on both the borrowers and the American banks that lent them much of the money has grown sharply. A 2% jump in interest rates has hit Latin countries with a potential increase of $5 billion in annual interest payments. Meanwhile, big-city banks in the U.S. have taken a beating on Wall Street as investors grow more worried about whether the Latin debts will ever be repaid. Says Rimmer de Vries, chief international economist for Morgan Guaranty Trust: "The world has become much more accident prone. I believe a reasonable solution can still be found, but the stock market is not giving the banks much time."

One of the major concerns among some bankers is that the Latin countries will form a debtors' cartel. Says Robert Hormats, a former Assistant Secretary of State: "We are entering a very dangerous period, so the point will be to keep the dialogue going." The danger is that the borrowers would walk away from their loans or attempt to bargain collectively for much easier terms, resulting in an international banking crisis.

When ministers from eleven debtor countries met last week in Cartagena, Colombia, to devise a strategy for getting concessions from the banks, most of them maintained a conciliatory tone and rejected the idea of a cartel. Said Chilean Economy Minister Modesto Collados: "Each country is different. To negotiate in a club makes no sense at all." But the depth of Latin restiveness could hardly be concealed. In his opening speech, President Betancur compared Latin America's financial burden to the crushing debt and reparations problems after World War I, which helped wreck the international economy in the 1930s and laid the foundation for World War II. Said he: "It is no exaggeration to say that the solution to Latin America's debt crisis is an essential ingredient for world peace."