Your partner in solving defaulted trade and bank debt

East-West Debt is an international company active in asset trading, debt recovery and debt collection of overdue claims on high risk countries. The company has set up a network of specialists, with many years of overseas experience in the recovery of claims, especially in Africa, the Middle East, Eastern Europe, Latin America and South-east Asia.

Ukraine near to debt default
In February Ukraine failed to pay domestic loan bonds to local commercial banks. The government postponed the payments by decree until May and September. In April the IMF advised its executive board to continue the lending from the $2.2bn loan programme that was frozen last November. IMF officials said the government had pushed through enough fiscal reforms to qualify. The budget deficit of the GDP went down from 2,7% last year to 1% this year. The government revenues and administration were improved and the electricity prices raised. Creditors admit the government's ability to repay is restricted.

Ukraine still has to pay on its external debt some $1.4bn. The IMF agreement will make it easier for Ukraine to get support from the World Bank and others. Foreign debt payments will probably be rescheduled. Due to the continual financial crises of Ukraine, the international financial institutions do not want to borrow money in large amounts unless Ukraine reforms its economy.

The US do not want the sanctions to be lifted. Russia and China want import and export sanctions lifted immediately. France wants to encourage Iraqi co-operation with at least a partial lifting of UN sanctions in return for supervision of the Iraqi weapons programmes and financial control, to ensure that oil money is spent on infrastructure and economy instead of buying arms.

The UK and the Netherlands have worked out a resolution to suspend the oil embargo on Iraq, once the government has answered all remaining disarmament questions. Iraq opposes to the new resolution, saying it is even more oppressive than the original UN resolutions.

International sovereignty vs.
the International Monetary Fund
Doing business with foreign governments
A barrier to dealing with these governments are the restrictions imposed by the International Monetary Fund (the IMF), affecting relationships between foreign governmental entities and purely private companies.

The role of the IMF
The IMF supports the central bank of foreign governments as they make available hard currency to pay for imports and to pay external debtors. The IMF provides credit facilities to allow governments to maintain smooth central bank operations. Thus, indirectly, the IMF supports the currencies of most countries.

How does the IMF affect private transactions?
In exchange for making various support facilities available to foreign countries, the IMF imposes conditions upon the operation of the each country's monetary and foreign exchange program. Over the past several years, the IMF has imposed increasingly tighter restrictions. Today, these restrictions extend to the routine commercial borrowing of foreign countries, their political subdivisions and other governmental entities. These restrictions are generally referred to as "conditionality".

What type of restrictions are imposed?
Typical restrictions include the issuance of government guarantees and the borrowing of additional funds. As a result, companies doing business with foreign governments should, as soon as possible, conduct an independent investigation to learn the government's borrowing and finance capabilities. Many seemingly strong foreign governments are under severe IMF restrictions. An early investigation will allow the company to avoid spending thousands of dollars in preparatory work for the project in anticipation that the government can obtain the needed financing. Checking out the IMF status is typically not that difficult. The existing agreements between the IMF and the country are usually available. In addition, most countries file reports with the IMF, reporting on their economic condition and the status of their IMF obligations on a regular basis. While the country can elect to withhold public dissemination of these reports, most opt to allow them to be published.

Article by James C. Nobles, Jr. of Nobles & Associates, attorneys at law, Atlanta, Georgia, USA. 

China's debt plans
After the bankruptcy of the Guangdong International Trust and Investment Corporation, many foreign banks were cutting their lending to China. Also the Guangdong Enterprises are languishing. During the meeting of the group's creditors in Hong Kong, the Guangdong's provincial government proposed a compound debt/equity swap thus trying to prevent creditors taking a cut in principal repayments on loans. Bankers said this swapping debt for equity did not compensate for the longer payback period, but they would continue to work with the government towards an acceptable proposal.

The Guangdong government and the central government have pumped cash into the Guandong Enterprises. The restructuring plan they proposed is including infrastructure projects such as power plants, toll roads and bridges. The most significant part of the restructuring plan is the injection of a water company that supplies most of Hong Kong with water.

Indonesia defaulted on public debt
Indonesia has defaulted on a $210m loan to a syndicate of international banks led by Tokyo Mitsubishi. This loan was rescheduled end March this year. It is not expected that Indonesia will default on its private sector obligations, due to negotiations for repayment of its $4.1bn debt to the Paris Club, starting in the year 2001.

Indonesia's ratio of external debt to gross domestic product has risen from less than 25% in 1997 to more than 75% this year. In May Indonesia signed a letter of intent to the IMF. This qualified Indonesia for $460m in IMF credits, allowed for the release of $500m in Japanese lending and $1.5bn in new World Bank loans. In August the World Bank and the IMF expressed their increasing worry, due to a big corruption scandal. This could delay the payment of already pledged funds to Indonesia.

Pakistan avoiding default
After the nuclear tests Pakistan carried out in May 1998, the US imposed economic sanctions. Due to these sanctions Pakistan was facing an impasse in the negotiations for new loan agreements with the IMF, the Paris Club and the World Bank. All the time the talks met difficulties in reaching accord on the economic conditions which Pakistan has to meet and because of the nuclear controversy.

In January Pakistan reached an agreement with the IMF to release $575m of its existing loan programme. The world Bank contributed a $350m structural adjustment loan for finance development of the banking and utility sectors and to reform the tax administration.

In February Pakistan rescheduled $3.3bn of its foreign debt with the Paris Club provided that its bonds were restructured. The sovereign bonds of Pakistan are hardly worth 23% of the principal amount and the government fears that a bond restructuring could be followed by negotiations with hundreds of investors. The investment fall-out due to the rescheduling might carry on for many years, and new investments seem unlikely.

Additionally Pakistan has a very weak economic prospect. The growth of the gross domestic product is down from a target of 6% to hardly 4%. There is an increased demand for public expenditure, caused by the strong growth of population by about 2.7%. The exports went down, the cotton crop was disappointing and Pakistan is facing arrears on foreign debt of some $1.5bn. Moreover the low international confidence in Pakistan makes it hard to sell state entities. As the country has so much difficulties in carrying out the IMF programmes, bankers are doubting Pakistan could ever meet the new conditions.
The main point of the IMF programme is to reduce Pakistan's budget deficit, which curbs the economy. In September the IMF delayed the release of its next tranche of $280m to Pakistan until October because of the worsening political atmosphere.

Suspending of UN sanctions against Libya
The UN sanctions against Libya are in force for seven years now. On 5 April 1999 Libya handed over the two suspects in the Pan Am airliner bombing of 1988, over the Scottish town of Lockerbie, to authorities in the Netherlands. The UN then suspended the sanctions against Libya. The council will take a vote on full lifting of the sanctions, when Libya conforms to three basic UN demands:

     1. co-operation with the trial of the two suspects in the Netherlands;
     2. a renunciation of terrorism;
     3. assurances that if the suspects are found guilty,
         Libya will pay compensation to families of the victims of the bombing.

The US do not want to lift their 'Iran and Libya Sanctions Act of 1996' until Libya agrees to compensation for the 270 Lockerbie victims, most of whom were Americans. But the trial of the two suspects is not expected to start earlier than spring 2000. The European Union argues that the US measures are ineffective and prefers restoring diplomatic relations and trade with Libya. The UN sanctions against Libya raised transaction and transportation costs, but did not have a vital impact on the country's economy.

The most important exports revenues are from oil, which make one-third of the GDP. Normally Libya has a balance of trade surplus. However, the fall in oil prices last year caused a trade deficit of 6.5% of the GDP. The external debt of Libya is some $2.6bn, excluding military debt. Libya is spending 6.1% of its GDP for military purposes.

Venezuela's political and economical crises
By a glorious victory of the elections, Hugo Chavez became the new president of Venezuela on February 2. He has to reform the political and economical system.

The economical situation of Venezuela is extremely bad, after 40 years of corrupt and inefficient government. The last 15 years the Venezuelans have seen their real income fall 67%.

The collapse in oil prices resulted in a budget deficit of 9% of the GDP as 70% of export revenues are from oil.

The government is willing to cut public spending and corruption by dropping expense accounts, chauffeurs, bodyguards and other benefits of high-level bureaucrats. The foreign ministry is recalling 200 diplomats and closing down embassies. The tax authority and other ministries have to dismiss thousands of superfluous officials. The problem is the new government has no competent substitutes for those officials, such as the Supreme Court justices and other magistrates.

Till now Chavez has not found a Central Bank president either. If the new administration fails to reduce the deficit, the currency could have to devalue.

To overcome the deep recession and structural instability, Venezuela needs a coherent economic strategy. A better image as a more reliable business partner is indispensable for attracting foreign investment.

Kazakhstan's bureaucracy
Kazakhstan has been attracting over $7bn of foreign investment since 1993, but for further modernization and development far more funds are needed. The country also has to improve its export position. Its exports exceeded $6.3bn in 1997, but the fall of oil prices last year caused a decrease of 15% of export revenues. This resulted in a trade deficit of $1.6bn in 1998. For 1999 the outlook is even worse.

Too many regulations impede trade and investment with Kazakhstan. Complex customs procedures, strict currency regulations and extensive documentation requirements cause much delay. Other factors that frighten foreign investment are the ineffective judicial system, shortage of domestic capital and a backward infrastructure.