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September 6, 1997
. Vreme News Digest Agency No 309
The London and the Paris Club

Ministers to Lend

by Vesna Kostic

Yugoslavia will get relief in paying off its 2.2 to 2.4 billion USD debt to the consortium of commercial banks. This is not because someone is willing to forgive and forget, but because these are the real possibilities of Yugoslavia's crippled economy. With this knowledge, the representatives of commercial banks who gathered around the so called London Club left Belgrade last week, after two weeks of talks, during which economic teams went through the projected economic development of FRY until the year 2003. One party of experts was led by Marsha Marli, the principle economist from the Chase Bank, and the other by Goran Pitic, director of the Economic Institute's Research Center.

It is expected that an expert analysis will be concluded after the next meeting of the Yugoslav delegation and the representative of the London Club, which is expected to take place around the middle of September in New York.

The Yugoslavs are yet to do the major part of the negotiations on the re-structuring of the foreign debt in these forthcoming negotiations with the states gathered around the Paris Club, and FRY's debt to this party amounts to 5 billion USD.

If the Yugoslav party had been more understanding and had taken a more realistic approach to the problem of paying back the foreign debt, maybe the negotiations would have already been technically completed, and they would only have to wait for the political decision which is dictated by the United States, which has put itself behind what is known as the outer wall of sanctions.

This is why we should recall the threat once directed to international creditors by Ph.D. Oscar Kovac, the eminent member of the former Yugoslav delegation: if they do not agree to our conditions, we shall not pay off our debts! How much this can stir and scare those to whom this was meant, can be illustrated by an example from the eighties when all major debtors of the world said that they would form their own cartel for the same reason (not paying off their credits). The meeting was supposed to be held in June 1984 in Cartagena.

Paul Walker, who was at that time the director of the American central bank (the Federal Reserve System or Fed), took this treatment so seriously that he left Basel, where he was attending the annual assembly of the Bank for International Settlements (B.I.S.) right before the gathering in Cartagena - and went fishing in Yugoslavia.

It is interesting that two years before that, during the South American debt crisis, the news caught up with Mr. Walker while he was also fishing, this time in Wyoming.

Not only are the debtors two years late with this initiative (the crisis broke out in 1982), but they have never succeeded to realize their threat.

Although they didn't succeeded in getting organized, as the creditors did (through the Paris and London Clubs), the debtors still found a way to cooperate. So, for example, at negotiations on reprogramming the debts to some South American and African countries, the representatives of other countries interested in the terms for debt postponement were also present.

Although informally, the creditors had already started organizing consultations among themselves by the time they started granting loans. That is how the London and Paris Clubs were created. And although these names became common here too, many don't understand their true meaning, and even fewer know how they were created.

"In both cases, these are no institutions by the name of Paris or London Club. I took part in the reprogramming of the Turkish debt in 1979, and I think that I am right when I say that the terms Paris Club and London Club did not exist back then. They were created in 1981 during the reprogramming of the Polish debt," explains Bryan Grimond for Vreme, one of the veterans of the international financial circles and president of the Anglo-Yugoslav Bank.

Vreme weekly asked Clifford Evens from the Moscow National Bank, who is also a veteran of the international financial gang, who are the members of these financial clubs? "Because the countries and the banks who financed them have been changing, and the members of the International Coordination Committee of the London and Paris Clubs have changed too. European problems were solved mostly by European banks, South American mostly by South Americans and African mostly by Francophone banks. As a rule, members of a committee come from the banks who have issued most of the loans to a country, and the chairman is usually a representative of the bank with the greatest amount of loans issued. This, however, was not always the case, due to political reasons. For instance, City Bank did not want to preside over the committee which had to solve the South American debt problem, and so this was left to the Lloyds Bank. German banks did the same on several occasions."

Something similar happened with the former Yugoslavia, because the representative of the Manufacturers Trust Bank presided over the committee for the reconstruction of its debt, although this bank was not the major creditor. City Bank granted most of the loans to SFRY, but this bank was too busy with similar problems in South America, so it was willing to leave chairmanship to someone else in the case of Yugoslavia. The second biggest creditor was the Manufacturers Trust Bank, who at that time really wished to find some "important" position on one of the committees. For Mr. Evens this was "a historic incident".

Although there is a widespread opinion that creditors are ready to ruin countries economically in order to get their money back, our conversationalists absolutely deny such intentions. "What are the banks trying to achieve? A situation in which a country is facing its obligations, in which it reconstructs its economy - industry, trade, banking system - to become able to return at least part of its foreign debt, and at the same time to gain the trust of the international financial community so that funds for the development of its economy could be granted again. If you push a country into social/citizens riots, no one will benefit from that, because if a country encounters the situation in which it can not return its debts, the bank is not doing any favor to its stock holders," assures Mr. Evens.

Does that mean that creditors are against changes?

"No, that's not what I said. I said that banks do not wish to be the cause of political changes. They wish to operate under regular circumstances in a country, where their loans are paid off on the most regular basis. Private commercial banks are not interested in politics, they are interested in commercial relations. Essentially, they do not care about the political situation if that situation enables them to lead operations which bring income. Commercial banks do not print money, they borrow it in order to lend it to a third party and have the obligation to return it to their stock holders and deponents. Banks arrive nowhere by creating chaos; they can get their money back only from organized economies," claims Clifford Evens.

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