Ecuadoran V.P. Speaks on Debt

Lending institutions must compromise with Latin American governments to resolve the international debt crisis, the vice president of Ecuador told an Institute of Politics forum at the Kennedy School yesterday.

Vice President Luis Parodi Valverde said that responsibility for his nation's $11 billion debt falls on both his government and bankers who approved the loans it received.

"We accept our responsibility having accepted the loans, but if we wanted to pay the debt now, [it would mean] that every Ecuadoran...will have to work two years of minimum wage to clear it," Parodi told approximately 100 people gathered in Starr Auditorium.

Parodi, in a forum entitled "Latin America's Debt, Mixed Enterprises & Recovery," said that the bust in world oil prices earlier this decade has thrown Ecuador into a financial crisis, making it impossible for it to service its debt.

"The expectations [for continued high oil prices] were very great among those who lended the money," Parodi said, pointing to the early 1980s trend among leading U.S. bankers to approve extravagant loans on the expectation of high payoffs.

"We all were wrong--those who lended and those who received, but there is a feeling that it is the fault of the borrowers," said Parodi, who was a top administrator in Ecuador's oil industry in 1980 and 1981.

Parodi, who spoke through a translator, said that while the Ecuadoran government wishes to repay all its loans, it cannot act "ignoring all other conditions, because paying back all debts involves hurting those in the country who are the most impoverished."

A trained engineer who served as president ofthe Escuela Superior Politecnica del Litoral inthe early 1970s. Parodi said that Ecuador mustnegotiate alternative repayment methods to avoidthrowing its budget into disarray and slashingsocial spending.

Parodi suggested that bankers allow his countryto pay back its debt at "secondary market rates,"which range as low as 15 percent of the value oforiginal loans. The drastically lower ratesreflect Ecuador's actual ability to pay, as wellas market rates for problem loans that lenderstransfer among themselves, Parodi said.

Hank Frothingham, Bank of Boston director forinternational capital markets and one of two IOPpanel respondents, disagreed, saying payment atsecondary rates is not a fair compromise.Frothingham instead said he backed tougher LatinAmerican debt servicing terms, drawing an analogyto Chapter 11 in America, which allows lenders toplace longterm claims on borrowers' assets whilethey reorganize their management under supervisionby authorities.

But Frothingham said it is good that theEcuadoran government has taken steps to improveits economy and improve relations with lendors.

"We've come a long way since 1982," Frothinghamsaid. "There is much less confrontation and muchmore agreement. With successful management skills[from its leaders], these countries can raiseconfidence and engender investment," he added.

Felipe Larrain, associate professor ofeconomics at the Universidad Catolica de Chile andvisiting scholar at Harvard, said he agreed withParodi that banks must limit their demands.

"The bankers will not face bankruptcy," Larrainsaid. "The problem is not the survival of thefinancial community, but rather the survival ofLatin America."

But at the end of the forum, Parodi said he hasdoubts about the interests of banks in general."My suspicion is that the bankers don't want us torepay the debt. They want us to service it--thatis their business," he said